Here are the 3 best months to buy stocks

What are the best months to buy stocks? It is difficult to answer this question because there will always be winner and losers in any month.

However, there is data that suggests stocks perform in better in some months compared to others.

 

3 best months to buy stocks

Generally speaking, stocks tend to perform well in the months of April, October and December. During these months, the markets typically experience a “streak” of positive returns.

 

1. April

April has been perceived as one of the best months to buy stocks.

This is reflected in data from The Stock Trader’s Almanac, which shows that since 1950, the S&P 500 has gained an average of 1.7% during April.

Why is this? In the US, companies traditionally issue their biggest dividend payments, stock buyback programs and annual reports.

Although companies release their annual results in February, annual reports give a more detailed outline of the company’s performance and plans for the future.

They are typically accompanied with trading updates, which will provide a share price boost if they are favourable.

 

2. October

October has also been seen as one of the best months to buy stocks. Stock prices have increased by an average of 1.3% since 1928 according to research from Fidelity Investments.

This is likely due to its proximity to the end of quarter earnings reports which are released at this time.

Compared to the end of the March or June quarters, there’s higher certainty of a full-year result (good or bad) given there is now 3 quarters worth of data.

Nevertheless, some Octobers have delivered amongst the worst stock market performances. In particular, the crashes of 1929 and 1987 begun then and the GFC in 2008 was well underway by October.

So October may not always be one of the best months to buy stocks.

 

3. December

This month is the only one on this list with its own phenomenon – the Santa rally. The Santa rally known as the Christmas rally or the December effect, is a phenomenon where stock prices tend to increase in the last two weeks of December, thereby leading to argument that December is one of the best months to buy stocks.

This is believed to occur primarily due to investors feeling more optimistic about the new year and taking on riskier investments such as stocks.

There are a few other reasons why Santa rallies happen.

This period often coincides with institutional investors and mutual funds reinvesting their profits from the prior year into stocks for added tax savings.

Additionally, corporate bonuses are often paid out during this time, leading to more capital becoming available for investment and pushing stock prices higher.

Research has shown that this trend can be quite reliable over the long-term.

According to data from Fidelity Investments, there has been an average 2.1% gain in the S&P 500 index in December compared to other months, at least since 1950.

 

Even if there really are ‘best months to buy stocks’…

…investors shouldn’t just buy any stock just because it is a month where stocks have been known to perform well.

Conversely, they shouldn’t abstain simply because the month in question has been bad historically. Maybe there’s a case to be made that the Santa rally can be a thing, but perhaps the other two months are just coincidences. And even considering the Santa rally, it is not as if there’s a phenomenon where stocks go down in January.

With appropriate due diligence, it is possible for investors to gain from stocks regardless of what month it is. And so one’s calendar should have no impact whatsoever in the decision of whether or not to dip your toes in the investing world.

 

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