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There's always risk in the financial markets. Yet, some periods of time are seasonally riskier than others.
Of course, seasonal trends don't guarantee that price trends will always follow the script. But, it's better to be prepared than to be caught by surprise.
September and October Lean toward Volatile Trading
We’re headed into what are traditionally two of the most challenging two months of the year; September and October.
Now, I don’t want to sound alarmist here. I’m just reminding everyone that September tends to be a volatile month and that many market crashes have happened in October, most notably the market crash of 1987. Still, other notable declines, such as the Dot-Com bust (1999) and to some degree the housing crisis began in October of 2007.
The problem is that it’s easy to get caught up in trying to figure out what’s going to happen and when. And unfortunately, in the current world, there are even fewer guarantees than what many of us have encountered in the past.
In other words, these two months are not to be taken lightly. But they shouldn’t deter anyone from implementing their long term wealth building approach.
That said, these are two good months to prepare for November and December which are usually months which deliver some of the best gains of the year - if history repeats.
So here’s an easy to implement, time tested strategy that, when implemented properly, will make life easier to handle and smooth out volatility in your portfolio - and hopefully let you sleep better.
Making Adjustments that Work
One way to prepare is to have some extra cash ready to deploy in November and December is by adjusting contributions into 401 (k) and IRAs in September and October to include larger amounts of cash than usual.
You can adjust your asset allocation any way you want. But a reasonable approach may be to, for example, reduce monthly contributions into your growth funds or ETFs by 50%. By doing this, you’re increasing your cash reserves which you can likely deploy at lower prices if the seasonal patterns play out as they usually do.
For example. Let’s say that you’re putting $500 to work in your self retirement plan every month – whether it’s an IRA or a 401(k) plan.
Depending on your risk profile you have some general choices: the aggressive approach, vs. the conservative approach or for many the balanced approach which features a bit of aggressive and a bit of conservative.
As an example, I’m going to focus on an aggressive investment plan. Such an approach may involve adding your entire monthly sum ($500 is our example) into your aggressive growth fund (ETF or mutual fund).
For the next couple of months (September and October), if it suits your approach, you may wish to add $250 (50%) to your aggressive growth fund while directing $250 (50%) to your money market fund (or equivalent cash reserve vehicle).
By doing so, you’re reducing the risk of paper loss you may incur if your growth fund declines over September and October (as often happens). At the same time, you’re adding to your cash reserves which you can put to work at lower prices once the market bottoms out.
You may ask how you’ll know when the market is bottoming out with reasonable assurances. That’s what I’m here for. Just follow the Sector Selector and you’ll be on the right side of most markets.
Finally, always stick with what’s working. If any current position you hold remains above its Sell stop – hold on to it.
For a more detailed daily analysis of the markets on a daily basis, I recommend checking out my Smart Money Passport Substack. If you’re not a subscriber, I suggest grabbing at least a FREE subscription to the service as you’ll receive our weekly Smart Money Trading and Strategy Weekly late Friday or early Saturday morning with all the details about what's happening in the markets and how they may affect your portfolio.
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