Most investors are familiar with the saying “Sell in May and go away”, but when should investors return? Behind this old saying is the historical monthly performance of the stock market. This article presents a brief discussion of the historical monthly returns and risk-adjusted returns for the DJIA so investors can draw their own conclusions. The specific time period in this article is 1973 through 2017. The monthly returns are the average values over the 45-year period and include the monthly price change plus the average dividend yield. For those readers unfamiliar with our previous article DTRS Sharpe Ratio:
Sharpe Ratio = Average (%ROR – Risk free rate) / Std. Dev. (%ROR – Risk free rate)
For the purposes of this article, the monthly returns are listed in order from highest to lowest. The corresponding monthly Sharpe Ratios are also included for comparison:
It should be noted that investors could have approximated the 1973 through 2017 DJIA total returns by being invested only 7 or 8 months of the year. The benefit of doing this would have been higher risk-adjusted returns (Sharpe Ratio of 0.60 to 0.65 versus 0.34) plus the opportunity to earn risk-free interest during the other 4 to 5 months. In simple terms, the suggested months to avoid are May, June, August & September (and possibly February). Though October (ranked 7th) is considered to be a volatile month, much of this perception appears to be related to pre-election jitters during presidential election years (Avg ROR = -1.129%). The flash-crash of 1987 also weighed heavily on the October results.
Readers should note that past results do not guarantee future returns.