By Roger Gainer
Learn more about Roger on NerdWallet’s Ask an Advisor
“Sell in May and go away” is an old Wall Street saying. Wall Street has many axioms, you may have heard some others like; “Buy on the rumor, sell the fact”, or “the January effect”, and one of my personal favorites: “Sell the losers and let the winners run”. These bits of wisdom are supposed to help you make investment decisions and succeed in building wealth and security for your financial security. When I started to write this entry, I was considering whether to advise folks to reduce risk and stock market exposure as we head into summer. That was when I remembered the old saying of “Sell in May and go away”. That saying has been around for decades.
There is a supposed pattern that stocks peak in May and then hit the “summer doldrums”. The idea being you are better off just moving out of the market and just going on vacation until Labor Day in time for the “fall rally”. While that may end up being good advice this year with the market around all-time highs, I ask you, why should you care? The problem with these sayings is that they are only true sometimes, kind of like flipping a coin. If you flip enough times, while calling “heads”, you eventually will be right! Last summer was pretty good for stocks, the summer before, not so much.
When I sat down to write, it occurred to me how silly all this is. If your future financial security comes down to whether you can time the stock market or if the stock market, real estate market, gold market, or bond market is doing well, something is terribly wrong!! While the stock market has its place in an investment portfolio, it isn’t for everyone. Should your retirement or financial security be dependent on the market doing well? I don’t think so. You can’t control the market outcome or the timing of corrections.
The pundits keep reminding us that “past performance is no guarantee of future results”, yet wall street constantly reminds us of good past performance while conveniently skipping the bad stuff. How often do they remind you about the crash of ‘29, ‘73,’87, 2000, 2007 and so on. After all, you could find the next Microsoft and look how that made someone rich!!
Well in nearly 3 decades in financial services, nearly all of the wealthy folks I have met got that way from starting a business, buying and selling real estate, or good old fashioned savings. In fact, there have been a number of studies showing the biggest determinant of financial success is based on your ability to save regularly, often and for a long time, allowing your money to grow and compound. Not on being an astute investor.
I have met far more folks who are poor from investing in the stock, bond, and commodity markets than got rich there. How about you? This is why Warren Buffet says there are two rules for investing. Rule number 1; never lose money. Rule number 2, never forget rule number one! The math bears this out. If I lose 50% of the value in my portfolio, I need to make 100% just to get back to where I started! That is a waste of time. If you understand compound interest, having your money grow consistently at a reasonable rate will generally beat the fluctuations of the market over time. Wall Street doesn’t want you to come to that conclusion as it is bad for their business.
I could spend a long time going over the math, but that would obscure the point. There are many ways to grow your wealth, the markets are only one piece of that puzzle. For the truly important financial objectives, you want to be in control of the outcome as much as possible. When investing your Really Important Money, know what you want to accomplish. Next, select strategies for yourself that work no matter whether the economy is good or bad, whether the markets are good or bad, or whether the sun is shining or it is cloudy. The markets can be part of that plan, but take care in using those kinds of investments to be your foundation.