Why Do People Say September Is the Worst Month for Investing?
Often in the financial media, you will hear people make reference to specific times of the week, month, or year that typically provide bullish or bearish conditions.
One of the historical realities of the stock market is that it typically has performed poorest during the month of September. The "Stock Trader's Almanac" reports that, on average, September is the month when the stock market's three leading indexes usually perform the poorest. Some have dubbed this annual drop-off as the "September Effect."
Key Takeaways
- Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8%, while the S&P 500 has averaged a 0.5% decline during the month of September.
- The September Effect is a market anomaly, unrelated to any particular market event or news.
- TheSeptember Effect is a worldwide phenomenon; it doesn't only affect U.S. markets.
- Some analysts consider the negative market effect may be attributable to seasonal behavioral bias as investors make portfolio changes to cash in at summer's end.
Understanding the September Effect
From 1928 through 2021, the S&P 500 index has averaged a 1% decline during the month of September. This is an average exhibited over many years, and September is certainly not the worst month of stock-market trading every year.
The September Effect is a market anomaly and not related to any particular market event or news. In recent years, the effecthas dissipated. Over the past 25 years, for the S&P 500, the average monthly return for September is approximately -0.4%,while the median monthly return is now positive.
In addition, frequent largedeclines have not occurred in September as often as they did before 1990. One explanation is that investors have reacted by “pre-positioning”—that is, selling stock in August.
Explanations for the September Effect
TheSeptember effect is not limited to U.S. stocks but is also associated with some worldwide markets. Some analysts consider that the negative effect on markets is attributable to seasonal behavioral bias as investors change their portfolios at the end of summer to cash in.
Another reason could be that most mutual funds cash in their holdings to harvest tax losses. Another particular theory points to the fact the summer months usually have lightly traded volumes, as a good number of investors usually take vacation time and refrain from actively trading their portfolios during this downtime.
Once the fall season begins and these vacationing investors return to work, they exit positions they had been planning on selling. When this occurs, the market experiences increased selling pressureand, thus, an overall decline.
Additionally, many mutual funds end their fiscal year-end in September. Mutual fund managers, on average, typically sell losing positions before year-end, and this trend is another possible explanation for the market's poor performance during September.
FAQs
It's what's come to be known in the markets as the September Effect. This year, the market's dealing with some particular challenges: decades-high inflation, rising recession fears, and a Federal Reserve that's probably not done with its aggressive interest rate hikes.
What is the best month to buy stocks? ›
According to Reuters, since 1945, April and December are tied as the best-performing months of the year for stocks, with an average return of 1.6%. (September is notoriously the worst, with an average loss of -0.6%.) During recessions, April's positive performances can be even more pronounced.
What is the biggest mistake an investor can make? ›
Common investing mistakes include not doing enough research, reacting emotionally, not diversifying your portfolio, not having investment goals, not understanding your risk tolerance, only looking at short-term returns, and not paying attention to fees.
Should I keep investing if I'm losing money? ›
Market volatility can be temporary, and if you sell your investment as soon as it dips, you might miss out on increased returns when the market bounces back. If you still believe your investment will perform well in the long run, you should hold onto it, especially if you are investing for the longer term.
Can you ever lose more money than you invested? ›
Technically, yes. You can lose all your money in stocks or any other investment that has some degree of risk. However, this is rare. Even if you only hold one stock that does very poorly, you'll usually retain some residual value.
Is September a good time to buy stocks? ›
September is traditionally thought to be a down month. The September effect highlights historically weak returns during the ninth month of the year, which could be aided by institutional investors wrapping up their third-quarter positions.
What months are usually the worst for the stock market? ›
One of the historical realities of the stock market is that it typically has performed poorest during the month of September. The "Stock Trader's Almanac" reports that, on average, September is the month when the stock market's three leading indexes usually perform the poorest.
Do 90% of investors lose money? ›
90% Retail Investors Lose Money - Rediff.com. Only the top 5 per cent profit makers account for 75 per cent of profits.
How not to invest? ›
Here are the common mistakes that the average investor makes with their money.
- Constantly watching the markets.
- Chasing the trends.
- Following bad advice from social media.
- Not giving your investments time to grow.
- Investing money you'll soon need.
- Having unclear investing goals.
- Delaying investing altogether.
Warren Buffett is widely considered the greatest investor in the world. Born in 1930 in Omaha, Nebraska, Buffett began investing at a young age and became the chairman and CEO of Berkshire Hathaway, one of the world's largest and most successful investment firms.
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
What is the safest investment to not lose money? ›
Here are the best low-risk investments in June 2024:
- High-yield savings accounts.
- Money market funds.
- Short-term certificates of deposit.
- Series I savings bonds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
“In other words, the money did not exist or disappear for long-term investors if you did not make any transactions. However, for short-term investors, when stock prices go up or down, the money would be transferred among them as a zero-sum game, i.e. your losses would be others' gains, and vice versa.”
Can a stock come back from zero? ›
Can a stock ever rebound after it has gone to zero? Yes, but unlikely. A more typical example is the corporate shell gets zeroed and a new company is vended [sold] into the shell (the legal entity that remains after the bankruptcy) and the company begins trading again.
Do you owe money if a stock goes negative? ›
A stock price can't go negative, or, that is, fall below zero. So an investor does not owe anyone money. They will, however, lose whatever money they invested in the stock if the stock falls to zero.
What is the number one rule of investing don't lose money? ›
Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are.”
What are the most profitable months for stocks? ›
Here is a summary of the NYSE Composite's best and worst months over the last 20 years (2004-2023)
- Best Months: April, July, October, November, and December.
- Worst Months: January, February, June, August, September.
The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.
What is the 11am rule in trading? ›
It is not a hard and fast rule, but rather a guideline that has been observed by many traders over the years. The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day.
Is it better to buy stocks when they are down? ›
If the price of a stock goes down, and you believe it has long-term value as an investment, then a lower price is a good opportunity to buy. The key is to choose quality long-term investments, by learning how to find quality companies to invest in or simply buying into an investment fund, such as an ETF or mutual fund.
