Is there a best month to invest in FTSE 100 stocks?

What does FTSE 100 performance data from 1996 to 2020 tell me about average monthly performances and more?

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Historically, April has been, on average, the best month for the FTSE 100. I first stumbled upon this finding when I investigated how Santa Claus affects the FTSE 100. From 1996 through 2020, I found the average return on the FTSE 100 in April to be 2.3%. The next best performing month was December with an average return of 2%, then October with 1%.

Table 1. Avererage FTSE 100 monthly returns measured from 1996 to 2020

JanFebMarAprMayJunJulAugSepOctNovDec
Average FTSE 100 Return-0.9%0.3%-0.2%2.3%-0.3%-1.0%0.8%-0.7%-0.8%1.0%0.8%2.0%
Source: Financial Times market data, author’s calculations

Aside from average monthly FTSE 100 price returns (which do not include the effects of dividends), gain and loss frequencies can be illuminating. According to research by Equity Clock, covering 20 years of data ending 31 December 2016, gains in April occur 70% of the time. That means that April showers losses on FTSE 100 investors 30% of the time. December is the best month in terms of this metric, with gains occurring 85% of the time. October and February are tied at 75%.

FTSE 100 monthly returns

The worst FTSE 100 decline in April between 1996 and 2020 was -3.3%, which is milder than any of the other months. November is second best with -4.6% and then December with -5.5%. March has the worst maximum loss of -13.8%, which occurred in 2020 during the coronavirus market crash. November had the best return of 12.4%, which occurred in 2021.

Table 2. FTSE 100 monthly gain probability and max and min returns measured from 1996 to 2020

JanFebMarAprMayJunJulAugSepOctNovDec
Gain Frequency45%75%55%70%45%30%60%50%50%75%50%85%
Max Return6.4%4.6%6.1%8.7%4.4%4.7%8.5%6.5%8.9%8.5%12.4%6.7%
Min Return-9.5%-9.7%-13.8%-3.3%-7.3%-8.4%-8.8%-10.0%-13.0%-10.7%-4.6%-5.5%
Source: Equity Clock and Financial Times market data

So what am I doing with all this information? Well, the first thing to note is that this data is only relevant to investing in the FTSE 100 as a whole. An index tracker like the iShares Core FTSE 100 UCITS ETF offered by BlackRock would be one way to do this. Second, these results are historical and might not hold true in the future. That being said, setting expectations in investing using historical data is common practice. But, I have to bear in mind that I could only expect, for example, an average FTSE 100 return of 2.3% in April going forward by being invested for the long term over multiple Aprils.

And of course, these return calcualtions ignore dividends. The yield on the FTSE 100 is around 3.5% right now. I would need to invest for at least a year to have a chance of capturing it and boosting my returns. Picking months to dip in and out (which would build up transaction costs) means I would miss out on this. Still, even if I don’t act on this data, it’s a useful reference for me, and helps put market moves in context. It’s always a good idea for any UK investor to familiarise themselves with Britain’s bellwether index.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James J. McCombie does not own any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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