September and October are known for being “scary” months for investors. But does that mean you should tweak your long-term investing strategy?
There are a lot of media reports now about how bears often come out of the woodwork this time of year. Yes, September is the worst-performing month on average—the only month with a median monthly loss going back to 1950.
September is also the only month in which there were more negative years than positive; 53% of Septembers since 1950 have been negative while only 47% have been positive.
Of course, small losses aren’t scary; it’s the “big ones” that keep investors awake at night. And on that count, September had the third-worst single month of the entire period, with a loss of 11.39% in 2002 and losses of more than 9% in 1974 and 2008.
October takes the cake for bad months in terms of really dramatic declines. The October 1987 Crash chopped 21.76% off the value of the S&P 500. And of course, the Great Crash of 1929 also took place in October.
So what conclusions can we draw from this, if any?
I’ll start by saying that, while statistically significant based on sample size, the averages for September and October are exactly that — averages. Using the past as a guide, we’re slightly more likely to see losses in September, but only slightly.
All else equal, the risk is not big enough to justify making major portfolio moves, particularly if your investment time horizon is longer-term and if by trading you would generate taxable gains.
So, the short answer is that the best option for long-term investors may simply be to sit on their hands, and watch the leaves change.