Sixty-Two Years Proves Best Months to Buy Stocks
Have you ever wondered if there are best months for the stock market? YES!!! There is!!! Based on a 62 year study conducted by The Stock Trader’s Almanac, five months of the year produce significantly better and safer returns than the other seven months of the year. These months were November, December, January, March and April. They added February to the list to formulate their Six Month Switching Strategy.
The simplified rule is to invest in the six months November 1st thru April 30th and then switching to safe fixed income products for the rest of the year. If you back test this strategy since 1950 with an initial investment of $10,000 in the DOW, you would have had gains of 6,740%. If you had invested the same $10,000 from May thru October, you would have lost $1,024. This is pretty compelling statistics especially when you also consider that if you had invested in November 1st thru April 30th, there were 48 years with gains and 14 years with losses or a ratio of 3.5 to 1. On the other hand, May 1st thru October 31st had 37 gains to 25 losses. Only three years had double digit losses during November thru April and they all coincided with financial crisis. If you only used the last 26 years for the study, the results improved to gains of $585,910 versus $498.
Improving the Six Month Switching Strategy
There are two ways to see improved returns from the simple Six Month Switch Strategy. If you dig into the numbers, you will see that February traditionally only gains 0.04%. If you remove February and replace it with July which on average returns 1.2%, you will see improved returns. Of course this change significantly complicates the simplistic Six Month Switching Strategy so it is rarely implemented.
The best change to this strategy uses MACD timing for trades as it improves results by 300%. It allows an investor to get in earlier and keep stocks in the trade longer. The Stock Trader’s Almanac claims that their newsletter has refined the strategy even further so that they only need four trades every four years which improves the results from the original study by 400%.
The basic Six Best Months to Buy Stocks strategy seems easy enough for anyone to follow. You invest in DOW ETFs like DIA during the good months and money market ETFs like SHV during the rest of the year. By adding a little common sense and only implementing this strategy during years when the market is trending upward provides a safe investment strategy for most people. Those of us that want to improve their chances with hand holding advice should invest in The Stock Trader Almanac’s $180 a year newsletter.
Best months for stocks – January, March, April, July, November, December
Worst months for stocks – February, May, June, August, September, October