While shares fell in May 2012, a rally began in June and total returns from 1 May until mid-September hit 4%.
Returns during the summer months have been positive in 17 of the past 27 years, Bestinvest revealed and during this timeframe, average FTSE All Share returns were 10%. Investors exiting the market for the summer, however, would have received 9.2% over the same period.
Lee Roberton, CEO at Investment Quorum, said: “Timing the market is incredibly difficult, and we take a long term approach to investing. We would not encourage investors to exit the market over the summer.”
As shown in the graph, annualised returns from a range of indices generally exhibit the same pattern. Europe ex. UK is the single exception and those taking breaks from the market during this time would have avoided negative returns.
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Grain of truth
However, while investors have benefited more often than not from retaining their holdings over the summer period, there have been more down periods during summer months than during the year as a whole. The table shows the most notable years during which the markets endured a summer slump.
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Despite the strong run in the market of late, the general consensus is to maintain a long term outlook, and to balance short term volatility by drip feeding money into the market on a regular basis, and using down times as a buying opportunity.
Jason Hollands, managing director, Bestinvest, said: “It has been many years since the City hung up its bowler hats en masse to spend a prolonged summer at sports events. These days markets trade globally and around the clock. The evidence since the Big Bang City reforms suggests that while there have been a handful of significant summer sell-offs which mean ‘average’ returns for the summer months are low, returns have nevertheless usually been positive and there is no compelling case to automatically get out of the market each May. Investors also need to consider that doing so would incur transaction costs, meaning they may miss the benefit of year-end dividend payments if you are invested in funds.”
Rathbone’s CIO, Julian Chillingworth, has discussed more reasons why it’s best to leave your money where it is during the summer months.
