Sell in May, Then Go Away?

Should you sell your stock funds in May and buy them back in September in anticipation of lower stock prices at that time? Perhaps, but you may find that you have lost money by trying to time the market.

The C fund for the Thrift Savings Plan broke its string of four straight months of gains with a loss in April, down 0.62%. The other underlying stock funds were also down with the S fund losing 0.71% and the I fund losing 1.87%.

For the past twelve months, the C fund is still up 4.85% (11.94% for the year-to-date) while the S fund is down 1.24% over the past twelve months (up 13.64% for the year-to-date) and the I fund is down 12.49% but up 8.84% for the year-to-date.

At this time of the year, a popular phrase is “Sell in May, then go away.” It means sell your stock holdings in May and then buy again when the prices are lower and start to go up again in October.

Each investor will have to make his own decision about whether to follow the advice of this philosophy. Last year, an investor that sold stocks at this time last year would have avoided a drop in the market of about 17%. The results were also not good for most of the summer of 2010.

But the experience of a couple of years does not mean it is always a good idea. Daniel Wiener, who writes an investment newsletter for investors in Vanguard mutual funds, wrote in his latest newsletter: “The fact is that selling in May is a lousy idea. Only September is a so-so-month, historically. Many others make you money….It does not make sense…to forego positive returns between May and August in anticipation of a weak September.”

As you can see from this chart, April was generally not a good month for TSP investors as the only underlying funds with a positive return were the F fund (up 1.44% and the G fund (up 0.15%).

For the lifecycle funds, each of the funds lost ground in April with the exception of the income fund was had a return of 0.01% for April. It is up 2.22% over the past twelve months.

Money Continuing to Flow Out Of the G Fund

TSP investors apparently think that 2012 will be a good year for stocks though. In March, TSP investors withdrew $471 million out of the G fund and $126 million out of the F fund through their interfund transfers. Most of this money went into the C fund ($225 million) and the S fund ($127 million) and into the lifecycle funds ($250 million). About $1.3 billion was withdrawn from the G fund in February and $821 million was withdrawn in January through interfund transfers.

But, to put it into perspective, 43% of monthly contributions goes into the G fund and only 19% goes into the C fund. And, despite the fact that the F fund has the best results of any underlying TSP fund over the past 12 months, and also had the highest return of any of the underlying TSP funds in 2011, only 6% of contributions went into this fund in March.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47