Should you sell every single stock you own today?

Harvey Jones finds a surprising grain of truth in the old stock market advice to “Sell in May….” but is a grain enough to make him act?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Timing the stock market is a temptation for every investor at some point, particularly if they fear a crash is imminent, and want to secure their profits. 

Sell in May

For a handful, it’s a seasonal issue, all down to dates, notably this one: May 1. Most of you will recall the old stock market adage: “Sell in May and go away, don’t come back till St Leger Day.” Is it true? Should you sell?

The saying dates back to the days when a hush fell over the City of London as stockbrokers cleared off to enjoy the summer season, and share prices snoozed through Glyndebourne, the Chelsea Flower Show, the Derby, Wimbledon, Henley, Goodwood, Cowes and the St Leger race meeting at Doncaster. This year the St Leger Festival falls on 12 September, more than four months away.

Summer struggle

So should you heed the old adage and bid your portfolio a summer farewell?? I suspect you already know the answer, but here goes.

The summer is not as bad as many think, according to fund manager Fidelity International, whose analysis shows the FTSE All Share produced positive returns between May and September in 18 out of the last 30 years. Investors who sold up would have lost out most of the time.

They would have fared particularly badly over the last six years when the market fell just once, by 7.39% in 2015. It rose the other five times, including 9.72% lift in 2016, and 4.41% in 2017. Some individual stocks can skyrocket.

There is a grain of truth in the saying. If you had invested £10,000 in the FTSE All Share 30 years ago and remained invested the whole time you would now have £128,033. If you had sold in May and bought back in September every year, you would have £126,950, only £1,082 less. However, there are three reasons why you should not try to time the market in this way.

1. Trading costs

Dealing costs quickly add up if you buy and sell regularly, and the money comes straight out of your portfolio. You need to see a clear advantage in selling up, and this one is not clear enough.

2. Dividend losses

Dividends will make up a large chunk of your overall profits, especially if you re-invest them for growth. Take time out from the market, and you are sacrificing a lot of juicy dividend payouts.

3. Bad timing

If you plan to exit the market in May, June, July and August, why not extend the principle? History suggests September and October are the most volatile months. Or perhaps limit your investing to December and January, historically good months? Points 1 and 2 argue against that, while a bad January could wipe out all your profits for the year.

Unless you need money for a specific reason, say, to buy a property or pay a tax bill, you would be daft to exit the market in full at any point. It might be wiser to go shopping for bargains like these two instead. You might also heed another old adage: “It is time in the market that counts, not timing the market.”

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.

Harvey Jones has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »