September has historically been a very difficult month for investments as measured by a number of indexes including the Dow Jones Industrial Average. Some even call it the worst month for stocks. Mark Hulbert reports that since 1896, the average return for the Dow in September is -1.24%.
How can you combat September’s investing woes? Here are 3 tips to consider:
- Buy More Stocks: While fear generally rules the day when investment returns are headed lower, the age-old adage of “buy low, and sell high” can help you in the long run. This may mean that you increase your savings deferral to your 401(k) during September and October’s lulls so that you’re saving more in a difficult time of year and hence buying at a discount.
- Be Careful What You Sell: On the flip side from buying low, you should evaluate your sell decisions based upon the market environment. When you need to raise cash for your spending needs, look at your overall investments to see what is overweight. If stocks investments have been going down more than bond investments, your bonds allocation may be higher than you originally intended. If you have more fixed income than you intended, selling from the bond side of the ledger would make common rebalancing sense.
- Monitor Losses: If the market does take a tumble, you should evaluate your taxable portfolios to determine if locking in capital losses would be appropriate. Many people analyze their tax situation at the end of the year, but a best practice is to monitor potential loss harvesting throughout the year with the ebbs and flows of the market.
In spite of disappointing September returns over the years, it goes without saying that past performance does not predict future returns. The September historical investment trends are not a rule, just an observation. Above all else, don’t get distracted by monthly peaks and troughs and keep your eye on your overall investment process and goals.
Melissa Joy, CFP® is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011, she was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.
Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.
Any opinions are those of Center for Financial Planning, Inc., and are not necessarily those of RJFS or Raymond James. Investing involves risk and investors may incur a profit or a loss. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation or an offer to buy or sell any investment referred to herein. Investments mentioned may not be suitable for all investors. Prior to making an investment decision, please consult with your financial advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.