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REPEAT-"Sell in May and Go Away"-BMO Cautions Investors on Timing the Markets In the spring and early summer one strategy on the minds of many investors is the old adage "Sell in May and Go Away." This seasonal approach to investing involved investors selling their stocks in May and returning to the equity market in the Fall.
Some historical data indicate that adopting this strategy can provide stronger returns. For example, according to Stock Trader's Almanac:
-- A $10,000 (USD) initial investment in the Dow Jones Industrial Average
invested only from November 1 to April 30 since 1950 would have
increased in value to $474,305 by 2008. This is based on the assumption
that all investments were switched into fixed-income investments during
the May to October period.
-- In contrast, $10,000 invested only from May 1 to October 31 annually
since 1950 to 2008 would have declined in value to $8,012.
"While the 'Sell in May' approach to investing is an interesting one, attempting to time the market is not advisable for the average investor," said Jack Ablin, Chief Investment Officer, BMO Harris Private Bank. Ablin noted that, if investors had sold in the spring of 2009, they would have missed out on substantial gains. In fact, in Canada, between 2003 and 2007, stocks rose during the summer months.
"Investors should adopt a long-term, diversified approach that maintains a return on your investments, while hedging against unnecessary risk," continued Mr. Ablin. "This includes building a portfolio that allows you to be active throughout the year and contains a variety of investments that are both conservative and aggressive. That way, if you prefer to lessen your exposure during certain periods, you can remain in the market and weather the highs and lows of the summer."
With an uncertain summer ahead for financial markets, BMO Harris Private Bank forecasts the top factors and developments for investors to consider as the weather gets warmer:
Credit conditions in the Eurozone: While recent headlines in Europe have cast a shadow on the global recovery, the risks posed by the sovereign credit crisis will likely diminish and should not negatively impact North American markets in the long term. Investors should note that daily stock market action may be affected. However, this will not necessarily translate into a permanent market loss in the U.S. or Canada.
The U.S presidential election and pace of the economic recovery: With an overhang of debt and upcoming fiscal challenges - such as the end of the quantitative easing period - coupled with this being an election year, the market can expect periods of economic distraction and a less linear path to recovery over the next couple of months.
Growth in China: China's GDP will likely grow by 7.5 per cent by the end of 2012. The projected growth for China, as well as the international economic approach the country's leaders are taking, will continue to provide a solid backdrop in maintaining the global recovery.
For more information on investing and wealth management strategies please visit: www.harrisbank.com/wealth
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