Why your clients shouldn’t sell in May

Why your clients shouldn’t sell in May

“Sell in May and go away, come back on St Leger Day”, suggests that investors would be better out of stock markets for four month of each year.

Between 1986 and 2015 the FTSE 100, excluding dividends, has lost nearly 30 per cent between 1 May and 30 September.

The FTSE 100, excluding dividends, had an average return of minus 0.99 per cent each year between May to September since 1986.

This movement in the markets resulted in many arguing it is good financial advice to recommend selling in May and stay away until September.

But if you look closely at the activity in the markets dividends destroy the sell in May myth as the FTSE 100 including reinvested dividends has risen by more than 20 per cent over the same period.

So, as we approach the May Bank Holiday weekend, we asked investment experts what advisers should tell their clients to help them navigate the markets this summer.

Stay in May

Adrian Lowcock, investment director, Architas, offered three tips to make sure your clients make the most of their money this summer.

Firstly, he said clients should stay invested.

While acknowledging the summer market movement was often negative, Mr Lowcock said trends are not guaranteed and when you include dividends being reinvested the FTSE 100 still delivered a positive return during the summer months.

Secondly, Mr Lowcock said he recommended keeping some cash aside.

Having some money ready to invest in case there is a big sell-off in the summer and there are opportunities which may arise is a good idea, he pointed out.  

Famous investors such as Warren Buffett frequently keep money aside ready to take advantage of any such opportunities, Mr Lowcock noted.

Thirdly, Mr Lowcock said advisers should make sure their clients have protection.

He said: “It is better to plan for the worst and hope for the best. 

“By having some exposure to defensive assets such as Targeted Absolute Return funds investors will be better positioned to protect their portfolio from any volatility and therefore be in a stronger place to reallocate on any weakness.”

Prepare yourself

Patrick Connolly, head of communications at Chase de Vere Independent Financial Advisers, said ultimately there are a number of investment myths, adages and beliefs and some have more credence than others. 

By the law of averages, he noted “most of them will be true at least some of the time.”

Unfortunately though Mr Connolly said nobody can time the markets or predict what is going to happen in the future with any real degree of confidence.

Mr Connolly said: “While it is true that markets can be more volatile in the summer months as they are moved by lower trading volumes, this doesn’t mean that investors should get out. 

“The most sensible way to maximise clients’ returns in the long term is to stay invested throughout the year and focus any decisions on their personal circumstances, objectives and attitude to risk.