Adam Shell

USA TODAY

Mayday! For stocks?

An old Wall Street adage coined by The Stock Trader’s Almanac says it may make good dollars and sense to steer clear of stocks for the next six months. But dumping every single share of stock in your portfolio and going to cash for the next six months and then jumping back into the market in October -- as the “Sell in May and go away” seasonal trading strategy advises -- might not be the best course of action for investors.

Monday marks the first trading day of May, and ushers in what has historically been the worst six-month stretch for stocks. And while there’s no denying that history shows the May- through-September period delivers far lower stock returns than the more bullish October-through-April time frame, implementing this rather extreme market-timing approach to investing might be a bit of overkill.

“Folks should stay invested,” says Anthony Valeri, an investment strategist at LPL Financial, adding that going to 100% cash is a “radical approach” and “another form of market-timing that we don’t advocate.”

If you look at historical performance statistics, however, it might seem like a good idea to steer clear of stocks for the next six months. Since 1929 the broad Standard & Poor’s 500 stock index has posted average returns of 5.04% in the November to April period , vs. a 1.87% gain from May to October, according to Bespoke Investment Group. The underperformance in the worst-six-months period has widened further over the past 50 and 20 years, data show. What’s more, in the past 20 years, Bespoke says, only three years have seen declines from November to April, while eight of 20 years have seen declines from May to October.

But gains are gains. So why miss out?

“While May to October has averaged minimal gains, they’re still gains,” Paul Hickey, co-founder of Bespoke told clients in a report. Even the average 1.87% gain going back 100 years for the worst six-month period for stocks, or the 0.85% return the last 20 years, is superior to the current average yield of 0.11% on money market funds, according to BankRate.com.

Hickey’s advice: “Hold in May and go away.”

So what other strategies might make sense and help your bottom line while reducing your risk during the unfriendly May-to-October period.

Sam Stovall, U.S. equity strategist at S&P Global Market Intelligence, says history shows investors would have made more money and “done better rotating than retreating.” His “seasonal substitution” strategy is about moving the cash invested in the S&P 500 stock index from October to April to less-risky and less-volatile assets, or sectors of the market that tend to fare well from May to October.

He recommends three strategies in which you invest in the S&P 500 in the best six-month period but switch to other investments in the six months starting in May. What to own starting in May:

--The Barclays Aggregate bond index. You’ll reap better returns than holding the S&P 500 all year with lower volatility.

--The S&P 500 Low Volatility Index, which gives you more bang for your buck and less volatility than buying and holding the S&P 500 for 12 months.

--Defensive sectors, such as health care and consumer staples, both which have posted nearly three times the returns of the S&P 500 in the May to October period since 1990.