The myth
Some people believe that there’s a timing to investments and there are “ideal times” to invest. One example of this is the period before December, because investors anticipate a “Santa Claus rally” where the stock market will go up.
When it’s “earnings season,” companies on the stock exchange announce how much they made (or lost) in the previous quarter. These happen in April for the first quarter, July for the second quarter, October for the third quarter, and January of the next year for the fourth quarter. If a company reports that it’s doing well, the value of its stock tends to go up.
Meanwhile, there are periods times when people avoid investing, like the seventh month of the lunar calendar. In Chinese superstition, this is the “Ghost Month” and it is believed to be a bad time to invest.
Finally, there are people who believe there are certain times when it’s better to invest in bonds than stocks and vice versa.
Why do people believe it?
One of the basics of investing is capital appreciation; when you invest and the value goes up, then you’ll have paper profit. Because of this, people look for ways to find out if it’s a good time to invest so they will eventually make a profit.
Superstition and belief can also be a big influence on when some people feel it is a good or bad time to invest.
Risks of believing this myth
Making an investment because it’s “in season” can actually be dangerous for your finances.
When unit investment trust funds (UITFs) were relatively new, there was a big demand for them. Despite not knowing the risks involved, people kept investing which drove UITF values up.
When the bubble burst, the value plummeted, and people lost money in the panic. It became known as the 2006 UITF market crisis, and it led to the many regulations and safeguards placed on these products today.
It is also risky to believe that there are set patterns in how the value of investments moves. If it were true, then every investor would already be wealthy.
Believing might also make you look only at the timing and disregard things like if the investment product matches your risk profile, or if the investment is legit or not. (See also: How to tell if an investment is legit)
Verdict: It depends (but mostly false)
There is a little truth in the idea. Stock prices, for example, usually react to quarterly earnings reports. However, the idea that all investment values move in a predictable pattern is false.
Always remember that higher potential reward always means more risk. If an investment was predictable, it probably has a very low potential for growth, like with time deposits.
What affects investments like bonds, stocks, and the UITFs and mutual funds that contain them, is not seasonality, but market developments. And the market reacts to different things: government regulation, international trade, industry trends, etc. That’s why they have more potential for growth: they’re exposed to more risks.
Beyond these external factors, don’t forget the internal factors too: your capacity to invest, your reason for investing, how long you plan to invest for, your risk profile, and your understanding of what you’re investing in.
