The ups and downs of the stock market are mainly a response to major economic trends and company-specific news. But to a certain extent, you can actually guess whether the market will rise or fall just by looking at a calendar. That’s because some months of the year tend to be better for stocks than others.
In this guide, we’ll take a look at the best month to sell stocks – and the best month to buy them back. Let’s dive in!
Should You Try to Time the Market?
Before we reveal the best months to sell stocks, it’s worth asking a fundamental question – should you try to time the market at all? Actively buying and selling stocks has advantages and disadvantages. Ultimately, it’s up to you to decide whether it makes sense for your investment goal.
Let’s take a look at some of the pros and cons of trying to time the market:
- You’ll see potentially greater returns compared to passive investing
- You can avoid periods of high market volatility
- You can act on short-term ideas about what assets will rise and fall
- You have opportunities to lock in some returns over time
- You could underperform the market if your timing is poor
- You need to spend a lot of time watching the market
- You may incur more trade commissions and a higher tax rate
- You won’t always be invested, so you could miss out on profits
What is Your Investment Goal?
When deciding whether it makes sense for you to try to time the market, it’s essential to think about your investment goal. Timing the market is typically better if you have a short-term investing horizon – say, a few months to years – than if you are planning to invest for decades. However, it also takes a lot of effort since you need to watch the market every day and do your own research. Most people who try to time the market set a goal of becoming better active investors.
Another thing to keep in mind is your overall plan. If you do sell your stocks when the market is up, when and how will you re-invest? It’s especially important to have an answer to that question in the event the market keeps going up, and you’re faced with the prospect of buying back stocks at a higher price than the price at which you sold them.
Historically Weak Months to Sell Stocks
With all that in mind, let’s take a look at some of the months that have historically been the weakest for the stock market. If you’re trying to time the market, you’d want to sell at the start of these months.
Looking all the way back to 1950, September has historically been the weakest month for stocks. On average, the S&P 500 has fallen 0.62% in September, and the market has been down during 39 of the last 70 Septembers. In the last 20 years, the S&P 500 has fallen an average of 1.10% each September.
The second-worst month for the S&P 500 is August, which has seen the market drop an average of 0.16% during the month over the last 70 years. In the last 20 years, though, August has only seen the market fall 0.05% on average.
The only other month that’s seen the market drop, on average, over the past 70 years is February. The average return for the S&P 500 in February is –0.12%, although it’s declined to –0.70% in the past 20 years.
Historically Strong Months to Sell Stocks
When you’re ready to buy back stocks, you may want to invest at the start of months that have historically delivered strong returns. The most impressive month over the past 70 years has been April, with an average return of 1.56% for the S&P 500. In the past 20 years, April has seen an average return of 2.31% (1.64% if you don’t count April 2020, when the market was recovering from the COVID-19-induced crash).
April’s returns are followed by those of November, which has historically delivered returns of 1.53% for the S&P 500. December, too, has been strong for the S&P 500, with an average return of 1.39%.
Here are the average returns for each month over the past 70 years:
Conclusion: When to Sell Stocks
While there are a lot of factors behind the market’s bull and bear runs, the month of the year can be a surprisingly strong predictor of whether stocks will rise or fall. When deciding whether to buy or sell based on a month’s historical return, keep in mind that these are just average values – a month in any given year could buck the historical trend. In addition, be sure that trying to time the market at all makes sense for your overall investment goals.