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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
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Why selling in May isn’t always right for your portfolio
Søren Otto Simonsen
Senior Investment Editor
Summary: While “Sell in May and go away” might be a popular saying in finance, you probably need to think twice before you follow through.
“Sell in May and go away, but remember to come back in September” is – at least within the industry – a well-known saying. But what does it mean, is it generally the right thing to do, and how does the strategy look in 2023?
The origin story
The idea behind the saying is that you should sell your investments in May and reinvest in September. The saying is believed to go back hundreds of years, and some say that it’s related to a famous British horse race from the 1700’s.
The rationale behind the concept isn’t all that clear. One argument for it becoming a thing is that you shouldn’t have to worry about the markets during your summer holiday. Another is that because many people will be on vacation there’s simply fewer traders, meaning less liquidity, which in turn can create larger (irrational) market movements. Other arguments range from seasonal effects to bad performance related to year-end bonuses paid out in May.
Care, but also, don’t care
With that kind of fog covering the term it begs the question – should you even care? According to Saxo’s investment coach, Peter Siks, the saying doesn’t really make sense although it holds some merit: “You must take these kinds of sayings with a grain of salt. It is true that if you look at long-term returns in the periods May-September and October-April, the latter outperforms the former. But, obviously depending on what specifics you look at, most stock markets still have positive returns in the summer period,” he says.
In that context, Siks also notes that the act of leaving the market comes with two distinct challenges – loss of returns and added costs: “If you leave the financial market for a period, you need to make up the returns you could have gotten somewhere else. Also, exiting and re-entering the market could incur costs. Depending on where you live, a move like this could also come with tax consequences,” he says.
Is Selling in May a 2023 thing?
2023 has been a year where the markets have been completely confused in terms of whether to go up or down.
“The central banks have a tough time figuring out whether they should fight inflation or support the economy. This has meant that the market is going sideways – although it has been relatively positive lately,” Siks says.
In a market like this, Siks suggests another route for a comfortable summer than selling everything, which could make you happier down the line: “You will miss chances if you stick to selling in May and coming back in September. Instead, I'll suggest considering one (or both) of these suggestions if you want to lower your risk for summer or in general: 1) Diversify your portfolio. Bonds have become more interesting than they have in decades, so maybe it’s worth considering placing some of your savings in that. 2) Decrease your portfolio’s beta (its volatility compared to the general market) to lower the risk of your portfolio. In that way, you can hopefully enjoy your summer without worrying too much about the financial market and still benefit from upswings in the market,” he says.
The origin story
The idea behind the saying is that you should sell your investments in May and reinvest in September. The saying is believed to go back hundreds of years, and some say that it’s related to a famous British horse race from the 1700’s.
The rationale behind the concept isn’t all that clear. One argument for it becoming a thing is that you shouldn’t have to worry about the markets during your summer holiday. Another is that because many people will be on vacation there’s simply fewer traders, meaning less liquidity, which in turn can create larger (irrational) market movements. Other arguments range from seasonal effects to bad performance related to year-end bonuses paid out in May.
Care, but also, don’t care
With that kind of fog covering the term it begs the question – should you even care? According to Saxo’s investment coach, Peter Siks, the saying doesn’t really make sense although it holds some merit: “You must take these kinds of sayings with a grain of salt. It is true that if you look at long-term returns in the periods May-September and October-April, the latter outperforms the former. But, obviously depending on what specifics you look at, most stock markets still have positive returns in the summer period,” he says.
In that context, Siks also notes that the act of leaving the market comes with two distinct challenges – loss of returns and added costs: “If you leave the financial market for a period, you need to make up the returns you could have gotten somewhere else. Also, exiting and re-entering the market could incur costs. Depending on where you live, a move like this could also come with tax consequences,” he says.
Is Selling in May a 2023 thing?
2023 has been a year where the markets have been completely confused in terms of whether to go up or down.
“The central banks have a tough time figuring out whether they should fight inflation or support the economy. This has meant that the market is going sideways – although it has been relatively positive lately,” Siks says.
In a market like this, Siks suggests another route for a comfortable summer than selling everything, which could make you happier down the line: “You will miss chances if you stick to selling in May and coming back in September. Instead, I'll suggest considering one (or both) of these suggestions if you want to lower your risk for summer or in general: 1) Diversify your portfolio. Bonds have become more interesting than they have in decades, so maybe it’s worth considering placing some of your savings in that. 2) Decrease your portfolio’s beta (its volatility compared to the general market) to lower the risk of your portfolio. In that way, you can hopefully enjoy your summer without worrying too much about the financial market and still benefit from upswings in the market,” he says.
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