Another investing year and another unfavorable season for equities is approaching. Even with all the roller coaster action in the markets the last couple of years, the seasonal strategy held up pretty good. Let’s take a quick look at Sy’s Seasonal Timing Strategy (STS) on a chart.
The green lines represent when the STS was riding the DIA ETF and the red lines are when the STS was on the sidelines. As I write we are waiting on the next signal to exit equities to determine the final tally for the 2016/17 favorable season.
The STS missed the August 2015 swoon, but rode the early 2016 correction down. The spring rally saved the 2015/16 favorable season and then some. The market moved sideways in the summer and fall of 2016 and exploded higher post-election after Sy’s entry signal came in. I expect more weakness this summer/fall so we will enjoy watching the show from the sidelines once again very soon.
As a reminder, the seasonal strategy is not designed to cherry pick market tops or bottoms. It is designed to pick a favorable entry and exit point for the favorable season for equities. It does not beat buy and hold every year, but over the full market cycle and your retirement investment horizon it should beat buy & hold and allow you to sleep better during those summer/fall corrections.
See the details of our seasonal models’ results here.
The chart above shows how the seasonal strategy fared during two bear markets and two bull markets since 1999 – two full market cycles. As a reminder, it is an objective timing model without emotion. The strategy pulls away from passive investing during bear markets and never looks back. And we know most active managers fail to beat the indexes. Thanks Sy!
Since we are sitting on top one of the most over-valued markets in history, I would say we are closer to a market top than a market bottom. I can almost guarantee it. Now more than ever, investors need to follow a strategy that can successfully navigate a bear markets. Too bad, so few follow a simple seasonal strategy.
There is another side of the coin. Investors need a strategy that will capture most of the bull market gains too. You can avoid a bear market by sitting on the sidelines forever, but that is not investing. You do have to ride some corrections down as seen in the chart above. But avoiding the larger ones with a seasonal approach is key to a larger nest egg.
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