By Scott Ronalds

You may have heard the phrase “Sell in May and go away”. It’s an investment strategy that involves selling your stocks in May and repurchasing them in the fall. It’s based on the premise that stocks have historically performed better during the months of November through April, and markets tend to be weaker in the summer months. The strategy can work, but it can also fail (it bombed last year). Either way, it’s market timing at its best – a risky and difficult way of trying to achieve superior returns.

Our advice to investors is to determine a Strategic Asset Mix (SAM), which is the long-term mix of stocks, bonds and cash that will provide you with the best opportunity to achieve your objectives, and stick to it through thick and thin. It may sound dull, but it will save you a lot of stress, headaches and market watching.

Suppose you sold all your stocks or equity funds last week. You now need to decide on a date to repurchase your investments. Let’s say you have the first trading day in November in mind. If the markets rise 10% by August will you be kicking yourself, and will you have the fortitude to wait until November to get back in? Or, if stocks steadily rise through the summer and autumn, do you postpone the reinvestment and wait on the sidelines for a pullback? At what point do you then get back in?

Conversely, if the markets fall 10% next month, do you jump back in early? Let’s say you do. The markets then fall another 5% in July. Are you angry that you got back in too early? Do you consider selling again? The list of possible scenarios and outcomes is endless, not to mention the potential tax consequences of frequently churning your investments.

When you have a 6-month time horizon in mind, you will be watching the day-to-day headlines and market movements much more closely, which means your emotions will play a big role in your decision making. You’ve gone from investing to gambling and are taking your eye off the important things that generate wealth over the long term. Selling in May and going away sounds sexier and more exciting than sticking to your SAM, but it’s a tough way to make a buck. And with all the variables and emotions at play, there’s a good chance your portfolio could come up craps.