Financial advisers and investors often look at past performance to gauge market cycles. If history is any guide, September is going to be a bumpy month for stocks.
In fact, September tends to be the worst month for the stock market going all the way back to 1950. The benchmark S&P 500 Index has declined by an average of 1% during the month.
October is usually much better, but it too is prone to wild crashes like we saw in 1929, 1987 and 2008.
There are many theories about why markets underperform in September (traders returning from vacation, seasonal behavioural bias, the news cycle, etc.). None of them should keep you up at night because investing is all about having a low time preference.
I often advise my clients never to pay attention to short-term movements in the market as this can distort our view of the future. If you panic-sold all your assets in March when the market was crashing, you would have lost out on the ensuing rally.
It’s always important to review your portfolio and adjust allocations as necessary, but hair-trigger movements should be avoided at all costs.
There’s strong reason to believe that this September will be much more volatile than previous years. For starters, investors are worried about the U.S. presidential election in November. The COVID-19 recession and overvalued tech stocks are also cause for concern. Some of those worries resurfaced on September 3 as the U.S. stock market recorded one of its biggest declines in months.
September might be the worst month for stocks, but it doesn’t have to affect you. In fact, you can use this month as an opportunity to boost your allocation through dollar-cost averaging. Now is not the time to let fear shake you out of your position!