Sell in May and Go Away?

The Inefficiencies Associated with Timing the Market

By Will Kemski

As we have just passed the month of May, it seems like an appropriate time to address the adage, “Sell in May and go away”. This saying is built on the premise that most positive investment returns have historically accumulated between November to April on an annual basis. While there may be statistics and data to back up and support this theory, it is actually very difficult to put into practice: First off, you need to decide on when and what position you are going to sell, and then when to buy them back (which is extremely difficult to do). Furthermore, isn’t it shortsighted to rely solely on historical trends to justify when to buy and sell? What about current market cycles and economic outlook?

An alternative or happy medium to this strategy would be to segment your money and take a balanced approach. What I mean by this is if you do truly believe you are able to beat the market, you may be better off opening a self-directed TFSA account and trading on your own behalf. The amount that you trade or “gamble” shouldn’t account for more than 5% of your investable assets. If you took this approach and did win the lottery, all the gains would be sheltered as growth inside a TFSA is not subject to taxation.

 

Essentially, timing the market is a difficult practice to employ and not recommended. If a client has an interest to trade their own stocks, we encourage them to do so, just don’t bet the farm. Depending on your time horizon, risk tolerance and investment objectives, segmenting your money can help you achieve your long-term objectives without having to time the market and at the same time minimize undue risk.