Summer slowdown something of a myth

Henley Royal Regatta, Cowes Week, the list goes on. And it ends with the St Leger flat race at Doncaster.

It is claimed that during this period trading volumes plummet and stock market fortunes wane.

Now, there was a time when the City did virtually shut in favour of Champagne, Pimms, strawberries and cream, and, if you were struggling to win with your share portfolio then maybe you would have more luck on the horses.

But these days the City is operating 24 hours a day.

According to banking and wealth management firm Coutts, market data from the last three decades shows the notion of losing returns over the summer is more often wrong than right – the FTSE 100 rose in 16 of the last 30 summers.

It maintains talk of taking profits in May and not reinvesting until September is a thing of the past and it is true that seasonality plays a part in market movements but they are guided by economic fundamentals, not old wives’ tales.

Monique Wong, Coutts multi-asset investment manager, said: “What matters is that global growth is still robust. Companies are profitable, people have jobs, and on the whole inflation is rising, albeit in a moderate fashion. In our experience, if you do not see a recession, you should own equities.

“Keeping your cash in a bank account may come with less risk but it isn’t going to give you returns above inflation any time soon. So with investing potentially the better option, there is a serious risk of missing out if you try to jump in and out of the markets.”

Analysis from investment group Fidelity shows that if you had pumped £10,000 into the FTSE All Share 30 years ago and left your money in the stock market the entire time, you would now have a massive £128,033. Those who sold in May each year, investing again in September, would have £126,950.

While the overall returns of the two approaches are much the same, investors should not forget to factor in the costs involved in buying and selling.

Research by Tilney Bestinvest, analysing 32 summers of returns, found that the FTSE All Share had risen and fallen an equal number of times, with seven “brutal” sell-offs and six “soaring summers”.

Jason Hollands, managing director, said: “While market returns in the summer months can be unpredictable, systematically exiting the market during this period does not convincingly stack up as a strategy.”

Especially as summer is when many companies pay out their dividends, so investors who sell could miss out on a vital income boost.

Good idea though to have a spring-clean once or twice a year with a view to re-balancing your portfolio. All in all, it may be better to go with another stock market adage – “time in the market matters more than timing the market”.

Long-term investment goals require a long term approach.