If there was a lesson to be learned in the first quarter, it was the value of staying invested.
The S&P 500 rose 12% through March 28, nearly erasing the gauge’s 14% decline in the three months ending Dec. 31, 2018. That means investors who resisted the urge to sell when U.S. stocks seemed to be careening toward a bear market late last year have now almost recouped those losses, as the S&P 500 is less than 4% below its all-time high.
Staying invested doesn’t mean you need to stay idle, however. Here are some tactical ideas for how to invest money in the second quarter:
IRA all the way
If you ever find yourself in need of a Friday night activity, check out Google search trends for the term IRA for the past several years. You’ll see a noticeable spike leading up to mid-April and then a huge slump thereafter.
The reason is simple: The IRS allows taxpayers to make contributions to an IRA for the prior tax year up until the tax return filing deadline (April 15 this year). Because traditional IRA contributions are tax-deductible, people looking for last-minute tax breaks inevitably want to find out all they can about IRAs this time of year — hence, all those Google searches.
» Need to get up-to-speed? See our complete guide to IRAs
Whether or not that cutoff date is a factor for you, don’t forget about this account once April’s over. Instead, devote time this quarter to answering the following questions:
- What assets are you invested in and why?
- What fees are you paying on investments, and are cheaper alternatives worth considering?
- What’s your asset allocation (the mix of various investments you’re invested in), and do you need to make some changes?
- What other accounts do you have hanging around (like a 401(k) from a former employer), and should you roll over to an IRA?
These questions may seem a bit underwhelming as an actual investment strategy, but looking under the hood of your IRA will provide valuable insight to make well-informed decisions.
You don’t need to make changes to your IRA just for the sake of it; in fact we’ve outlined some simple portfolios to achieve your retirement goals. But your strategy likely will shift over time, so you may find opportunities to tweak how to invest your money.
For example, if a fund in your portfolio has an expense ratio (management fee) that’s noticeably higher than the rest, you might want to shop around for a mutual fund or exchange-traded fund with a similar investment objective and lower fees. Or, if your target asset allocation is 70% stocks and 30% bonds, and that ratio has shifted, you’ll need to rebalance your portfolio by buying or selling investments to restore it.
Thanks to the tax-related deadline for contributions, there’s a lot of springtime buzz about IRAs, so use it as a reminder to go all-in understanding yours.
Buy in May?
There’s a famous saying on Wall Street: “Sell in May and go away.” The adage suggests investors sell stocks in May and return to the market after September to avoid the less-active summer months when people are on vacation and volatility can spike.
But one of the strongest three-month stretches of the year for the S&P 500 historically is June through August, suggesting investors may want to buy rather than sell in May. Combined, the June-August period has seen cumulative average returns of 2.9% going back to 1928, according to data from Yardeni Research. The only three-month stretch that’s better is November to January.
Some experts anticipate this year could be a historic one for IPO activity, which will bring out new and seasoned investors alike.
At NerdWallet, we generally recommend you don’t try to time the market (bet when it’s peaked or bottomed) and instead regularly add money to your investments with a strategy known as dollar-cost averaging. However, if you’ve got some extra money this spring — from a tax refund, for example — betting that history could repeat itself (could, of course, being the key word) is an opportunity to zig when others zag. Or in this case, buy when other investors sell.
Since that historical data centers on the S&P 500, an easy and low-cost way to implement this strategy is with an ETF that tracks this index. We’ve broken down how to evaluate your options (spoiler alert: there are only three) when buying an S&P 500 ETF.
Finally, the months ahead likely will bring a whole slew of initial public offerings to market, including rideshare companies Uber and Lyft, the latter of which is expected to start trading this week. Some experts anticipate this year could be a historic one for IPO activity, which will bring out new and seasoned investors alike.
» Learn more: What is an IPO?
Investing in the early days of a new publicly traded company is alluring because of the prospect the stock price will quickly spike higher. As with anything investing-related, however, there are no guarantees, and you should do your research before investing in IPOs and take note of the potential risks.
If you undertake a new investment strategy this quarter, make sure you can afford to lose money on bets that are more speculative, and be mindful of the higher associated trading costs you’ll incur, in addition to tax liabilities. And read our tips on how to invest your savings for short-term or long-term goals.