Fisher Investments Explains | Does Timing the Market by Season Actually Work?

Transcript

As an investor, you're likely familiar with several seasonal investing adages, such as "Sell in May," or the "Santa Claus Rally," or "September is the Worst Month." But is there any truth to them, and can they be helpful? While we understand why some investors might believe these sayings to be true, we think they lack merit. Let's take a closer look. Consider one of the more infamous seasonal myths, September is the Worst Month, which says investors should avoid the market in September. Now, statistically, there is some truth to the saying. Since 1925, every month except September has delivered positive average S&P 500 returns. But September's negative average return is skewed by a few big outliers. Notably, stocks fell 29.6% during the Great Depression in September 1931, which remains the worst single month decline in modern history. Now, to account for the skew that outliers can often bring to averages, we often refer to the median, or the midpoint, of all observations, and September's median returns are positive. And more importantly, September is actually positive for stocks more often than it is negative. So, that means cashing out in September— or any month for that matter—is likely a costly mistake. Now, to illustrate the point, let's compare two hypothetical $100,000 investments held from 1980 through 2024. The portfolio invested year-round grew to over $17 million, while a "Sell in September" strategy returned just 15 million. Missed returns can quickly compound, jeopardizing an investor's long-term financial goals. Now, more broadly, our research has shown seasonal adages are derived from coincidental historical patterns with little fundamental basis. If seasonal adages could predict prices, efficient markets would have priced it in a long time ago, which would sap any of the advantage that it would have. So, the next time you hear about seasonal investing— whether it's "September is the Worst Month" or something else— just remember, with these strategies, you're more likely to sidestep gains, not losses.