Sell in May and go away, don’t come back until St Leger’s Day.
This is a popular investment saying, but does it work?
The theory comes from when trading was an in-person activity, taking place on the floor of a stock exchange.
Investors were usually wealthy people who would leave London for the summer. They’d enjoy the leisure pursuits of the countryside and come back after the last major horse racing meet of the year, the St Leger’s Stakes. This was usually around the middle of September.
This meant there wasn’t much trading activity over the summer months, and returns were lacklustre at best.
We live in different times now though. Most trading happens electronically, and investors are rarely fully ‘away’.
This article isn’t personal advice. All investments can rise and fall, so you could get back less than you invest. If you're not sure what’s right for you, ask for financial advice.
What does ‘sell in May’ look like today?
We’ve run the numbers looking at the five months from May to September in the FTSE All-Share for the last 20 years. We found returns were negative over this period for six of those 20 years.
The average return for this five-month period was 1.05%. But there were some pretty hefty falls in a few of these periods, including two of more than 10%. We would probably all have rather avoided those.
At the end of the day though, individual numbers don’t matter, because at the start of May you have no way of knowing if the next five months will be one of the positive ones, and what the size of the return will be.
As always, no return is ever guaranteed, and past performance isn’t a guide to the future.
UK stock market - 20 year performance
Should you sell in May and go away?
Let’s assume you had £1000 to invest. You put this into the market at the start of October 20 years ago and took it out at the end of April, repeating this process each year, putting in your original £1,000 plus the returns made in previous years.
Taking the money out of the market in 2024, your £1000 would now be worth £3,526. Not bad.
But now let’s assume that you had just left this money invested during the entire 20 years. Your £1000 would now be worth £4,024.
This is an illustration and actual returns would depend on the investments chosen. Figures don’t take the impact of charges into account. We haven’t factored in inflation or if you’d need to pay any tax on returns.
So, sell in May and go away? We don’t think we will.
Given the evidence, we prefer to live by a different investment adage – it’s time in the market, not timing the market that matters. So, investing is best with money you don’t plan to spend in the next five years. And don’t forget to check in on your portfolio once or twice a year.