TSI #4: The stock market Summer Slump is coming

Let me begin by explaining what the “summer slump” actually is. “Sell in May and go away” is a popular warning in financial circles. Historically, the months between May and October are somewhat worse than the rest in terms of returns.

Following this discovery, some investors tend to use this a blueprint. It was especially popular in the past when data was difficult to find and assess. However, numerous studies have shown, that past returns cannot predict future returns. Timing the market is a fool’s game. Here is a great quote to sum it up.

“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” – Peter Lynch

By selling your portfolio in May and then buying again in October you would have made two terrible mistakes. Assuming you are using a taxable brokerage account, you would have to pay taxes on the stocks you just sold. Furthermore, there is a good chance you would not be in a better position. Who knows, the market could have gone up in that period. Imagine the stress level.

Between 2010 and 2020, the only year the rule benefited investors was 2011. All the other summers ended with gains. So much for timing the market. In 2021, JP Morgan Wealth Management even advised investors to break the rule.

If you are a long-term investor you have nothing to fear. Seasonal observations are nothing more than stories used to make investing more “exciting”. Do not let such things scare you from building generational wealth.

Have you heard of this phenomenon before?

To Your Financial Freedom,
Vittorio