Posted by & filed under Economics & Markets, Investor Behavior, Wealth Management.

Did you know that the largest three one-day drops ever to have happened in Dow Jones’ history happened in the month of October? On the 19th of October 1987, Dow Jones fell nearly 23%, making that day the worst day in US stock market history. It was followed by the 24th and 29th of October, 1929, when Dow Jones fell 13.5% and 11.5% respectively, ushering in the Great Depression. These events are commonly remembered as the crash of 29 and the crash of 87.

Despite boasting the top three worst days in market history, October is not the worst month for the stock market. That distinction belongs to September. (See Chart)


Why is that?

I believe I have a psychology-based explanation. Most investors don’t understand the true cause of a market crash, but they nevertheless remember the most salient information about the crashes; that they happened in October. So they pulled money out of the market in September, resulting in September being the worst stock market month on average.

The same investors will begin to put money back into the market once they see light at the end of the tunnel. That usually happens in the middle of October. To be exact, Oct 13th is the day the market turns around on average.

What to do about it?

First of all, avoid this mob mentality. There is no point in pulling money out in September just to put it back in in October, unless you love to pay more taxes and transaction costs.

If you have a lump sum of money you want to put to work, September is a good month to invest in the market. When others are selling irrationally, it’s a good time to pick up shares at discounts.

If you want to find out how I can help you, schedule a Discovery review with me. If you are not ready, you can still get my white paper for free: The Informed Investor: 5 Key Concepts for Financial Success.

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