Have you heard the saying ‘Sell in May and go away’? What does it mean and is it a portfolio rule you should follow?
Some market pundits think that markets will only go down from May until summer is over, and that one is further ahead by spending summer on the sidelines. You won’t know if this was a good move or not until June 1; you have a 50/50 chance of doing the right thing, but portfolio moves should not be done with the same odds as a toss of a coin.
Your investment philosophy should be based on discipline, asset allocation and research to make sound decisions, not hindsight. Historically, selling in May would have been beneficial the majority of the years, but, you could miss out on great summer months like 2013’s.
If you have gains in a fund, you may wish to take profits, but I would not recommend leaving the money in cash, but redeploying. To be on the cautious side, an investor could transfer half of the assets from a higher risk fund to a moderate option. This will give an investor more protection on the downside if the markets decrease, but if we have a summer rally, some investments that outperform will still be held.
Many people go on holidays over the summer months and the volume of market trading may decrease, but the economy and news that may affect the markets does not stop.