Santa is coming. So is the ”˜Santa Rally’ in the investment market and whilst this annual phenomenon is a tempting time to invest, Yorkshire IFA, Stephen Baxter insists that longevity in the market place is key.
The Santa Rally is the term investors use for the gentle rise in the markets during first couple of weeks of December followed by strongly rising markets in the last two weeks of the year.
It has happened in 26 out of the last 32 years since 1984 and eight out of the last 10 years. Most of the return on investment comes in the second two weeks of the year.
According to Stephen Baxter, Joint Managing Director at IFAs Robertson Baxter, there is a temptation for short term investors to get their money in and out quickly during December, but that long term investing has seen the greatest gains.
“For investors who decided that December was a good time to invest in the FTSE 100 and did so on the 1st of the month and then withdrew their money on the 31st, if they had done this every year since 1986, their investment would have grown by 74% total return.
“However, if they invested in December 1986 and held it continuously, the return would be 1037%,” he said.
“This supports the old adage that, as with most investment returns, it is time in the market that matters not market timing!” added Stephen, whose firm manages the financial future of very high net worth individuals, trustees and charities across the region.
“Every year, professionals debate whether the Santa Rally is superstition or fact. The facts say that since 1988 markets have risen in December in 75% of the years.
“Why does it happen? There is a shift in market sentiment, there are lower trading volumes and managers will generally reposition portfolios ahead of the year end.
“However, it might simply be down to there being more goodwill cheer during the holiday season, leaving investors in a positive mood and more likely to buy than sell. The fact is, no one knows for sure.”
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