Anyone who has ever invested in the stock market will have heard the myths around dollar cost averaging and that it is time in the market, not timing the market that counts.
Every May we also hear the mantra that you should sell in May and go away. Given that the Australian market has been falling this month, investors may be thinking that they should heed this advice – but is it still relevant today?
To answer that, let’s look at the last 22 years since May 2000.
During that time, the market closed higher than it opened in May 68% of time while it closed lower than it opened 32% of the time. As such, this suggests that May is not such a bad month but if we take a closer look, when the market closes lower, May averages a 5% loss for the month and when it rises, it averages 2%.
Of the seven times that the All Ordinaries Index closed lower than it opened in May, four of those occurred over consecutive years from 2010 to 2013 following the GFC when the Australian market was quite volatile and mainly moving sideways.
While the research indicates that May is a more bullish month, it is not overly bullish. The research also suggests that following a negative result in May, the market is often bullish for several months, which is positive given that May 2022 is likely to end in negative territory.
So, if history is anything to go by, maybe the mantra needs to change to say that May is the month to be preparing for opportunities in the market.
Dale Gillham is chief analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online at www.wealthwithin.com.au