6. It’s a Good Idea to Sell Stock Holdings on a Seasonal Basis
Some investors might buy into the myth that it’s beneficial to get out of stock holdings for a few months, in the anticipation that equities will be flat during that time period, said Mitch Tuchman, managing director of investment firm Rebalance.
“This belief is especially prevalent in the summer months — note the predictable pattern of ‘sell in May and go away,’” he said. “However, this runs two important risks. First, you will miss two or more quarterly dividend payments. For example, if you have $250,000 in a retirement fund, your dividend yield on an S&P 500 Index investment is $5,323 a year. If you pull out for half the year, you’re leaving $2,662.50 on the table, which could compound into $10,695 in the next 20 years that won’t be yours if you don’t collect.”
Additionally, Tuchman said that those who sell seasonally miss out on gains.
“For almost 50 years, stocks have put on about one percent during the summer months,” he said. “The up summers averaged 5.6 percent, and the down summers averaged a negative 8 percent. But if we have a typical, truly average summer, that’s another $2,500 you don’t collect by being in cash.”
