We all know what …the most wonderful tiiiiiime of the year… is. But what’s the worst time of year? Fall. It means to drop suddenly, to descend to a lower place, or… summer’s over. The sun’s leaving and the rain is starting here in Oregon. Time to put everything fun away. Get it all wrapped up or indoors so it doesn’t wash away, freeze, or get ruined over the next 6+ months. Even the name is negative and, coincidentally, it’s what the stock market does in September.
Historically, September is one of the worst months of the year for stocks. So it is once again in 2022.
So why wouldn’t you sell in August every year? Well, there’s no guarantee it happens every year AND you’d miss out on …the most wonderful tiiiiime of the year! October – January is seasonally the best time of the year for stocks. Often called the Santa Claus rally.
Someone who trades in and out regularly might want to try and exploit these patterns but long-term investors don’t pay much attention.
Instead, we look to long-term averages. For example, we know during an average recession since WWII the stock market goes down approximately 30%, but they don’t stay down. After a recession, on average the stock market goes up dramatically: 1-year stocks rise 15.33%, 3 years stocks rise 45.84%, and 5 years stocks rise 120.33%.
So now that stocks are down 23% so far this year, there’s really no reason to fear the pullback anymore, because it already happened. We can now start to look to the up markets that come after a recession and try to capitalize on those.
How do we do that?
1. Sit tight. Let the doom and gloom of fall play out and as we head into the best time of year for the stock market. The money that’s already invested will benefit when inflation moderates and the stock market starts to rise again. No predictions here of how long it will take, but we are confident the deliberate decision to increase rates from the Federal Reserve will help stop prices from accelerating higher.
2. Invest more. Since we believe we’re most of the way down, now is a good time to take advantage and put some cash to work. We’ve done this many times now: March 2009, July 2011, Jan 2016, June 2016, Feb 2018, April 2020… Without exception, putting money to work in the midst of a downturn has always been a good decision.
Here’s a list of what we’re about to buy in our Growth Stock Portfolio: The bank Wells Fargo WFC, the cyber security company Crowdstrike CRWD, and the auto company Ford F.
In the Moderate Funds Portfolio, we’re making plans to buy a Buffered ETF. These funds seek to minimize the downside and capitalize on the upside over the next year. One fund, in particular, will avoid the first 15% pullback if stocks go down, but will still capture a 15% upside on the S&P 500 if stocks go higher in the next year.
3. Discuss other options. If you find yourself getting worked up about the volatility, please contact us so we can address those feelings and discuss what changes, if any, we should make to your portfolio in the future. Guarantees are paying above 4%/yr now and while we don’t suggest selling stocks that are down, these could be great for uninvested money or after things trend higher.
We’re printing out our Call List to try and touch base with each client. We look forward to talking then but feel free to contact us if you have any needs prior to that.
Thanks for reading,
