One of the more persistent investment myths holds that a winning strategy is to sell stocks in May and wait to buy back into the market until November.
While it is true that stocks have provided greater returns from November through April than they have from May through October, the equity risk premium has still existed for those middle-of-the-year months since 1926. In other words, selling in May and then going away hasn’t been a good strategy.
In fact, from 1927 through 2013, the “sell in May” strategy underperformed the S&P 500 Index by more than 1.5 percentage points per year. And that’s even before considering any transaction costs, let alone the impact of taxes. Taxes matter here because you’d be converting what would otherwise be long-term capital gains into short-term capital gains, which are taxed at the same rate as ordinary income.
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