Skip to Content

Can You Better Time Your Annual Investment Base on Market Seasonality?

There is a popular saying that investors like to say “Sell in May and Go Away”.

After a while, people infer that this means if you sell your portfolio in May and move to risk-free instruments, then come back in October or November, your results are better.

Many wonder how true this is.

There is definitely those periods where May to Nov turned out to be very well. Last year was the most recent that comes to mind. If we missed out on that performance our portfolio value would look different. Another was the run-up after SARs.

But in general… from the evidence that I see, there are some truth to that.

Recently, I came across a few quantitative charts that are pretty interesting. These charts show the seasonality return performance of some various indexes.

The S&P 500 Index Seasonality

Perhaps the most important index in the world is the widely followed S&P 500. The S&P 500 represents some of the largest companies in the world. collated the S&P 500 price data for the past 20 years to chart what looked like the average return performance of each single trading day.

The notable down months was February, June and September.

In other months, there was drawdowns but there were big corrections back.

From the data it seems there are some justification not to missed out on October, November and December.

Personally, I do not know how useful this is but perhaps you can use this to see if the chart on top checks out.

A quick scan shows some of the months do coincide with the data above.

The Nasdaq Index Seasonality also have the data for the Nasdaq.

I think for the Nasdaq, February and September tend to be challenging months. The summer seem to be stronger for the Nasdaq.

The MSCI World Index Seasonality has less data on MSCI World ETF but here is the seasonality over an 8 year range.

In general, the weaker month have been in March, which is a little different from the US ETF. But you could see that they do coincide close to one another. June and September’s average positive returns are rather low as well.

How to use this Data

If are some takeaway, it is that you should focus on the data that shows Maximum and Minimum Returns. For each month, there was a spectrum of returns.

You are not going to get the average return.

There is also a question if we have earlier and longer dataset, would the seasonality look different. If it is different, what do we do with it then?

I think in the long run, investing in equities is to gain enough exposure to the market risk premium. On the big picture, the market risk premium is the thing that will drive your wealth building.

We take risks. Historical data shows us that if we take the risk, there is a premium over a risk-free return.

Let us not lose sight of that.

But if you are thinking of investing your annual capital in your active or passive portfolio, perhaps the months of February, June and September will provide some opportunities.

We cannot miss the months of April and November it seems.

Is it a good idea to move in and out based on these quantitative data? I have not tried it and there are surely some backtested data out there. If you came across any then do let me know.

These few days, I came across information about how passive fund flows and options market making have changed the landscape.

Strangely, if we look at the data above, there seem to be some price swings or breakout mid-month. I wonder if its due to the unpinning of the major market index such as the S&P 500 after the market dealers removed their hedges after options expiry.

Anyway, we will observe next week what will happen.

Do check out

Other than these indexes, they have also seasonality data on sectors and other market indices.

I do have a few other data-driven Index ETF articles. These are suitable if you are interested in constructing a low-cost, well-diversified, passive portfolio.

You can check them out here:

  1. IWDA vs VWRA – Are Significant Performance Differences Between the Two Low-Cost ETFs?
  2. The Beauty of High Yield Bond Funds – What the Data Tells Us
  3. Searching for Higher Yield in Emerging Market Bonds
  4. The performance of investing in stocks that can Grow their Dividends for 7/10 years
  5. Should We Add MSCI World Small-Cap ETF (WSML) to Our Passive Portfolio?
  6. Review of the LionGlobal Infinity Global – A MSCI World Unit Trust Available for CPF OA Investment
  7. 222 Years of 60/40 Portfolio Shows Us Balanced Portfolio Corrections are Pretty Mild
  8. Actively managed funds versus Passive Peers Over the Longer Run – Data
  9. International Stocks vs the USA before 2010 – Data
  10. S&P 500 Index vs MSCI World Index Performance Differences Over One and Ten Year Periods – Data

Here are some supplements to sharpen your edge on low-cost, passive ETF investing:

  1. Can You Better Time Your Annual Investment Base on Market Seasonality?

Those who wish to set up their portfolio to capture better returns believe that certain factors such as value, size, quality, momentum and low volatility would do well over time and are willing to harvest these factors through ETFs and funds over time, here are some articles to get you started on factor investing passively:

  1. Introduction to factor investing / Smart Beta investing.
  2. IFSW – The iShares MSCI World Multi-factor ETF
  3. IWMO – The iShares MSCI World Momentum ETF
  4. GGRA – The WisdomTree Global Quality Dividend Growth UCITS ETF
  5. Investing in companies with strong economic moats through MOAT and GOAT.
  6. Robeco’s research into 151 years of Low Volatility Factor – Market returns with lower volatility that did well in different market regimes
  7. JPGL vs IFSW vs Dimensional Global Core vs SWDA – 22 years of 5-year and 10-year Rolling Returns Performance Comparison
  8. 98 Years of Data Shows the US Small Cap Value Premium over S&P 500
  9. 42 Years of data shows that Europe Small Cap Value premium over MSCI Europe

I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.

My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.

To find out more visit Interactive Brokers today.

Join the Investment Moats Telegram channel here. I will share the materials, research, investment data, deals that I come across that enable me to run Investment Moats.

Do Like Me on Facebook. I share some tidbits that are not on the blog post there often. You can also choose to subscribe to my content via the email below.

I break down my resources according to these topics:

  1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
  2. Active Investing – For active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
  7. Providend – Where I used to work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works
  8. Havend – Where I currently work. We wish to deliver commission-based insurance advice in a better way.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

This site uses Akismet to reduce spam. Learn how your comment data is processed.