Superstition Stalks the Market

Wherever you are Wherever you are going Superstition stalks the market Debunking the ‘October effect’ So, what’s the truth? Is the arrival of October like the Think superstitions are nonsense? Many professional proverbial black cat crossing the path — a harbinger investors would disagree. They talk of something called of bad news to come? the “October effect”: the widely held belief that October Not necessarily. If you look at the monthly returns for the is a bad month for the markets. S&P 500® over the last 20 years, you’ll see that historical Is this superstition fact or fiction? market data for October tells a different story. In fact, It’s true that October is typically a jittery time in the as the chart below demonstrates, the S&P 500 closed markets; a phenomenon some market watchers pin in the plus column 65 percent of the time over the past to the fact that the first month of autumn is when 20 years (period ended December 2009), according to companies report their third-quarter earnings. Perhaps Standard & Poor’s. And while that performance may not even more important, October is when many of those scream “buy,” it certainly doesn’t scream “sell,” either. same companies share their outlook for the fourth There were actually six other months that were tougher quarter and the year ahead. Speculation around those for investors to make money. announcements has often driven panic in the market place. Is the October effect real? It’s also true that the stock market has crashed three times Take a look at the monthly performance of the S&P 500 Index and each of those disasters occurred in October. The first (1/1/1990 – 12/31/2009) time was in 1929, two days before Halloween. On October Month Average Monthly Return Percent Positive 29, the Dow Jones Industrial Average (which tracks the January -0.06% 60% performance of America’s 30 largest companies) plunged February -0.66% 55% 12.8 percent, beginning a slide that eventually sent the March 1.14% 70% April 1.80% 70% country spiraling into the Great Depression. May 1.87% 80% The market crashes again June -0.44% 55% Fifty-eight years later, on October 19, 1987 — what is now July 0.38% 45% referred to as Black Monday — the stock market was crushed August -0.64% 60% by a mixture of panic and computer-programmed selling September -0.76% 50% that cost the Dow 22.6 percent of its value. Then just 21 years October 0.92% 70% November 1.60% 70% later, in October of 2008, history repeated itself. At one point December 1.79% 80% during that October market crash, the Dow was down by Source of data: www.standardandpoors.com/indices/market-attributes/en/us. more than 27 percent as the United States slipped further Past performance does not guarantee future results. into recession. (continued) It appears that the “don’t invest in October” superstition By investing systematically, you will be less tempted to doesn’t necessarily hold. That is why experts suggest that make decisions on the basis of short-term events and rather than letting emotion interfere with reason, you take your emotions. And, as a result, your fortunes as an a more disciplined approach to dealing with the unknowns investor won’t depend on your ability to make the right of future market movements. call about future trends. One such method is dollar-cost averaging1 — and it’s a built- For further information on financial planning in feature of your retirement plan. Dollar-cost averaging We invite you to visit mybmoretirement.com or won’t guarantee you’ll make a profit or prevent a loss, but call the My BMO Retirement Line at 1-800-858-3829. it can help cushion the impact of market swings, and lower the long-term cost of investing. Here’s how it works: You invest a fixed amount of money on a regular basis, whether the market is up or down. When prices are high, you buy fewer shares. When prices are low, you buy more shares. Over time, dollar-cost averaging offers you the potential to accumulate more shares at a lower cost per share than if you invested all your money at once. The only time this would not occur is if the share price remained constant over time. Since dollar-cost averaging involves continuous investing regardless of fluctuating prices, you should consider your ability to continue investing through periods of low price levels. 1Dollar-cost averaging does not assure a profit or protect against loss in declining markets. This type of plan involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue investing during periods of low markets. BMO Retirement Services is a part of BMO Global Asset Management and a division of the BMO Harris Bank N.A., offering products and services through various affiliates of BMO Financial Group. Investment products are: NOT FDIC INSURED – NO BANK GUARANTEE – MAY LOSE VALUE. ©2012 BMO Financial Corp. 10-325-299 (09/12).

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