Canadian Investors: Should You Sell in May 2021 and Go Away?
The Motley Fool
Published Apr 19, 2021 12:00
Updated Apr 19, 2021 12:15
Canadian Investors: Should You Sell in May 2021 and Go Away?
“Sell in May and go away.” That’s the phrase that Canadian investors are likely to hear every year, and it doesn’t really matter how high the broader markets have sprung into the spring month. The phrase is clever, it rhymes, and the strategy has worked on some occasions in the past. But don’t count on it to help you achieve market-beating results this year.
“Sell in May and go away” is timing the market Like it or not, subscribing to such an arbitrary strategy as “sell in May and go away” is timing the market. And regardless of the so-called strategy, timing the markets can be tremendously harmful to your wealth, especially if you’re a young Canadian investor who should be taking on more risk to build a larger nest egg.
Seasonality and month-based investment decisions don’t achieve market-beating results consistently over the extremely long term. Instead of looking to get in and out of the markets, you should be looking to maximize time in the markets.
Now, I’m not saying that you should never sell stocks if their market prices have exceeded your estimate of their intrinsic value. Rather, I think it’s a mistake to liquidate a considerable chunk of your portfolio based on what some bearish talking head on TV said in the financial news last week.
Are we overdue for a market correction? After an incredibly strong start to 2021, we very well may be due for a correction. But that doesn’t mean you should “sell in May and go away.”
Why? Even if you get the timing right and the stock market plunges this spring, it’ll be tough to get back in at the market bottom. Timing markets is far easier said than done. And unless you’re a seasoned trader, it’d be foolish (that’s a lower-case f, folks!) to even try, because odds are, you won’t be able to get in at the bottom, and you very well may have to pay higher prices if any post-correction bounce backs prove to be more abrupt than you’re expecting.
Moreover, investors face another risk in the form of inflation. For those with too much savings, inflation can be a nasty beast, especially given all the stimulus in the market and the fed’s extremely dovish tone. And bonds? They’re a wash. For those with excess cash or bonds, bond proxy stocks like Fortis may be worth buying, even with the markets at fresh all-time highs. The 3.7% yield growing at 5-6% per year blows fixed-income securities right out of the water. And as we head into the latter part of 2021, I think such defensive dividend stocks could be bid up in a big way.
The road ahead could be a lot bumpier, but you should stay invested Take the recent growth-driven correction in the tech-heavy Nasdaq 100. Rising 10-year U.S. Treasury note yields were on everyone’s mind, and if you paid too much merit to shallow projections calling for 3% rates, you missed out on a fantastic but short-lived buying opportunity. This goes to show that sometimes it just pays to be a contrarian, even if everyone on the Street would view you as foolish!
Get The App
So, in short, you shouldn’t sell in May and go away if you’re planning on liquidating a big chunk of your portfolio with the intention of getting back in at lower prices. If you lack dry powder and aren’t ready for the next market correction, however, I think it’s wise to trim away at your biggest winners over the past year. It never hurt to take a profit, and if you’re ill-prepared for Mr. Market to take several steps backward, I think you need to ditch some of the frothier stocks that have surged above and beyond your estimate of its intrinsic value.
The Foolish takeaway Valuations are stretched, and the Warren Buffett Indicator is flashing red. At the same time, there is a tonne of things to look forward to. The pandemic could end soon, and President Joe Biden’s stimulus could give corporate earnings a jolt, the likes of which many of today’s investors may never have witnessed. So, unless you’re low on cash, it may not be wise to sell and May and go away!
The post Canadian Investors: Should You Sell in May 2021 and Go Away? appeared first on The Motley Fool Canada.
Fool contributor Joey Frenette owns shares of FORTIS INC. The Motley Fool recommends FORTIS INC.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2021
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.