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The Truth About October Investing


By MoneyWise Staff

Wednesday, September 25, 2019

Is October the month of market crashes? AccoStocks Crash October Effectrding to, the October effect is the theory that stocks tend to decline specifically during this month. This theory is supported by multiple historic market crashes. For example: on October 19, 1987, the Dow fell 22.6%, one of the largest single-day drops in market history. This day has been coined as Black Monday. Other examples include: Thursday, October 24, 1929 (Black Thursday) when the Dow dropped 11% and Tuesday, October 29 (Black Tuesday), which marked the beginning of the Great Depression.  Are these historic crashes anything more than coincidence? What should you look for in October?

-  There’s no evidence that the previous major market crashes were connected. The statistics show more historical down markets have occurred in September than October

-  Previous market slides in the years 1987, 1990, 2001, and 2002 turned around before October was over.

-  Despite the 1987 plummet, Black Monday has been one of the best buying opportunities of the last 50 years.

-  The psychological expectation of the October effect combined with skittish investors is a recipe for a self-fulfilling prophecy. Evidence suggests than more often than not, you’ll make money in October.

-  October may get a bad rap for the significant historic drops, but it’s important to remember that market downfalls don't cluster. As convenient as it would be for all financial collapses to occur in just one month, October is no more susceptible to downfalls than the other 11 months.

-  If October isn’t the worst month, which is? September has more historical down markets and was the instigator for the crash in 1929.

The stock market is not easy to predict. But one thing you can rely on is that after every crash, the market will eventually go back up. Here are some parting words regarding the October Effect.

  • Don’t get caught up in worrying over one month, think long term. If you’re investing in the short term, be conservative, lighter on stock investments and only invest what you are willing to lose.
  • If you sell in October, you could be missing out on big gains. December is typically a good month for the market.
  • Be sure to diversify as past performance doesn’t always indicate future returns.
  • Spread your money around and combine investments in multiple sectors to alleviate risk.
  • Exploit the fear, if other investors are selling off during October, be sure to look for deals.

As with all investments, careful vetting and due diligence is a must. Call our office at 1-800-223-8791 or search the Securities Portal to check if both the professional and securities products being offered are registered.

Blog topics:  Investing, Archive