What Is the Best Month to Own Stocks?, #169

Retire With Ryan

Last month, we saw major stock market declines, with the S&P 500 down over 5% and the NASDAQ dipping 6.5%. This begs the question: Is September a bad month to own stocks? And if it is, which month is the best? On this episode, I’m exploring the historical performance of the S&P 500 and its monthly returns, as well as a listener question about receiving social security benefits from your ex-spouse. You don’t want to miss it!

You will want to hear this episode if you are interested in...

• Receiving social security benefits from an ex-spouse [1:44]
• Examining the historical performance of the S&P 500 [4:44]
• Determining the best month to own stocks [7:13]

Understanding S&P 500 performance

To find out which month is best to own stocks, let's focus on the S&P 500. The Standard and Poor's Index was founded 66 years ago on March 4, 1957. It represents 500 of the largest companies on the U.S. stock exchange. Before its official launch, the S&P only had 90 stocks, which grew to 233 before becoming the S&P 500.

Historically, the S&P 500 has seen an average annual growth rate of 9.8%, including dividends, and an annual standard deviation of 20.81%. However, it's crucial to understand that the stock market doesn't consistently deliver a monthly return of 0.81% (9.8% divided by 12 months). There are ups and downs, making it essential to prepare for volatility. When examining monthly returns, a few months stand out as particularly strong. As of May 2023, only four months have had an average annual return exceeding 1%, with July leading at 1.7%, followed by April (1.4%), December (1.3%), and January (1.2%). The end of the year and the beginning of the new year, often called the Santa Claus Rally period, tend to perform well.

Seasonal trends and investment strategies

On the flip side, three months have historically produced average annual losses for the S&P 500 since 1926. September stands out as the worst, with a negative 1.1% average return, followed by February (negative 0.1%) and May (negative 0.1%). This weakness in February and May is often attributed to profit-taking following strong performances in December, January, and sometimes April. Additionally, the period from May to October tends to see lower average and median returns compared to other six-month periods. This phenomenon has led to the saying "Sell in May and go away." September is usually marked by investors returning from summer vacations and possibly selling stocks to lock in gains for the year. Families also face financial obligations such as tuition and back-to-school expenses during this time. Moreover, mutual fund companies start paying distributions in September, requiring them to free up funds by selling investments, including stocks.

However, it's crucial to remember that historical trends are not a crystal ball for predicting future market movements. While April may have risen 80% of the time in the past, it doesn't guarantee a positive April this year. Market conditions change, and various factors influence stock performance. Therefore, rather than trying to time the market based on monthly averages, a more prudent approach is to have a diversified portfolio with a suitable asset allocation that matches your risk tolerance. Regularly rebalance your portfolio to maintain your desired risk level while minimizing the urge to make impulsive decisions during market fluctuations. Ultimately, a long-term investment strategy focused on a diversified portfolio is more likely to help you achieve your financial goals.

Resources Mentioned

• Retirement Readiness Review

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