Sell in May and Go Away? Why Seasonal Investing Myths Do Not Work With XEQT

Every May, like clockwork, someone in my life brings up the “sell in May” thing. My uncle mentions it at a family barbecue. A coworker pastes a Bloomberg headline in Slack. Somebody on r/PersonalFinanceCanada posts a breathless thread asking whether they should dump their XEQT and sit in cash until Halloween.

Last May, it was a text from my buddy Marcus. “Hey, should I sell my XEQT and buy back in November? I keep hearing that markets are garbage in the summer.” He had about $45,000 in XEQT inside his TFSA and was genuinely considering pulling the trigger. So I sat down and ran the numbers for him. I showed him what would have happened if he had followed this advice every year for the past two decades. I showed him the transaction costs, the missed dividends, the times the “bad months” turned out to be some of the best rallies in recent memory. I showed him how many of the market’s best single days fall in the supposedly dangerous May-to-October window.

He did not sell. And looking back, he is very glad he did not. The summer of 2025 turned out to be one of the strongest stretches for global equities in years. If Marcus had followed the seasonal playbook, he would have missed thousands of dollars in gains while sitting on the sidelines doing nothing productive.

This article is my full breakdown of why “sell in May” and every other seasonal investing myth is a trap – and why the best strategy for Canadian XEQT investors is, as always, to stay invested and stop trying to be clever.

Disclosure: I may receive a referral bonus if you sign up through links on this page.

1. What “Sell in May” Actually Means

The full saying is “Sell in May and go away, do not come back till St. Leger Day.” It originated in the British stock market, where St. Leger Day refers to a famous horse race held in September. The idea was that wealthy London investors would sell their holdings before summer, go enjoy themselves at country estates and horse races, and return to the market in the autumn.

Over time, the adage evolved. In North America, the concept shifted to: sell your stocks in May and buy back in November. The six-month period from May through October is supposedly the “weak” season, while November through April is the “strong” season. You will also hear this called the Halloween Indicator or the Halloween Effect – the idea that you should only be invested from November to April.

It sounds reasonable on the surface. If certain months historically produce lower returns, why not just skip them? Collect your gains during the good months and sit in cash during the bad ones.

The logic is seductive. And like most seductive ideas in investing, it falls apart the moment you look at it closely.

2. Does the Data Support It?

Here is the part that makes this myth so persistent: there is a kernel of truth in the data. That is what makes it dangerous.

If you look at average monthly returns for broad equity indices over the past 30 to 50 years, the November-to-April period has indeed produced higher average returns than the May-to-October period. This pattern shows up in the S&P 500, the TSX Composite, and many global equity indices.

Here is a simplified look at average monthly returns for global equities (using S&P 500 data as a proxy, 1990-2025):

Looking at these averages, the “strong” months (November through April) average about +0.9% per month, while the “weak” months (May through October) average about +0.3% per month. Over a full six-month period, that is roughly a 2-3% difference in cumulative returns.

So the seasonal crowd is right, correct? Not so fast.

The critical detail everyone ignores

May through October still has positive average returns. The “sell in May” strategy does not tell you to avoid negative months. It tells you to avoid less positive months. That is a completely different proposition.

If you sell in May and sit in cash, you are not avoiding losses. You are forfeiting positive returns – just slightly smaller ones. Over a 20-year period, those forfeited returns compound into an enormous amount of money.

Here is another problem: the averages are heavily skewed by a handful of terrible Septembers. September is historically the worst month for equities, and a few catastrophic Septembers (2001, 2002, 2008) drag down the entire May-to-October average. Meanwhile, July and October frequently post strong gains, and some of the most powerful rallies in market history have happened during summer months.

The seasonal pattern is real in the same way that a coin landing on heads 52% of the time is real. It exists statistically. It is completely useless as a trading strategy.

3. Why the Strategy Fails in Practice

Even if you accept the seasonal pattern at face value, actually executing a “sell in May” strategy with XEQT is a disaster in practice. Here is why.

Transaction costs and tax consequences

Every time you sell XEQT in a non-registered (taxable) account, you trigger a capital gains event. If your shares have appreciated – which they should, since you are a long-term investor – you owe tax on 50% of the capital gain at your marginal rate. For a Canadian in a middle tax bracket, that could be 30-40% of the gain going to the CRA.

Even inside a TFSA or RRSP, selling and rebuying twice a year creates unnecessary friction. The CRA has rules about TFSA day trading that could theoretically apply if you are making frequent large transactions. It is not worth the risk.

Missing dividends and distributions

XEQT pays distributions quarterly. If you are sitting in cash from May to October, you miss two distribution payments. XEQT’s distribution yield is modest (typically around 1.5-2% annually), but over decades, reinvested distributions contribute a meaningful share of total returns. Forfeiting six months of distributions every year is money left on the table.

The risk of missing massive rallies

This is the killer. As I covered in detail in my article on market timing and missing the best days, the stock market’s best single days tend to cluster around its worst days – during periods of high volatility. Many of those volatile spikes happen during the “bad” months.

Here is a sobering fact: roughly 40% of the market’s best single days over the past 30 years have occurred during the May-to-October window. If you are sitting in cash, you miss them entirely. And as the data shows, missing just the 10 best days over a 20-year period can cut your total return nearly in half.

The behavioural cost

This might be the most underappreciated problem. Let us say you actually sell your XEQT in May. The market drops 5% in June. You feel like a genius. Then it rallies 8% in July. Suddenly you are behind. Do you buy back in? Do you wait? What if it drops again in August?

The “sell in May” strategy assumes you will execute it mechanically, with perfect discipline, year after year. In reality, humans are terrible at this. Once you sell, every market movement triggers an emotional response. You second-guess yourself constantly. And most people who sell in May do not actually buy back in November – they wait for the “perfect” entry point that never comes.

If you want to understand why time in the market consistently beats timing the market, this is exhibit A.

The 20-year cost: buy-and-hold vs. sell in May

Let me put concrete numbers on this. Consider two Canadian investors who each start with $100,000 in XEQT in the year 2005:

The difference is roughly $135,000 – and most of that gap comes not from the seasonal pattern itself, but from the compounding drag of capital gains taxes, missed dividends, and the inevitable behavioural mistakes of trying to time entries and exits twice a year. Even inside a tax-sheltered account where capital gains are not an issue, Investor B still trails Investor A by tens of thousands of dollars due to missed summer rallies and forfeited distributions.

4. Other Seasonal Myths, Debunked

“Sell in May” is not the only seasonal pattern that investors obsess over. Let me walk through the others and explain why none of them are actionable trading strategies for XEQT holders.

The January Effect

The January Effect is the idea that small-cap stocks tend to outperform in January, supposedly because investors sell losing positions in December for tax-loss harvesting and then reinvest in January. There was some historical evidence for this pattern in the 1970s and 1980s.

The problem? The January Effect has largely disappeared since it was widely publicized. This is a common phenomenon in finance – once a pattern is discovered and published, market participants trade on it, which arbitrages it away. In recent decades, January has been an unremarkable month for small-cap returns. For a globally diversified fund like XEQT, the January Effect is completely irrelevant.

The Santa Claus Rally

The Santa Claus Rally refers to a tendency for markets to rise during the last five trading days of December and the first two trading days of January. Yale Hirsch, who popularized the concept in the Stock Trader’s Almanac, found this seven-day period had positive returns about 75% of the time.

Here is the thing: the average gain during this period is about 1.3%. That is not nothing, but it is also not a reliable trading strategy. You cannot build a portfolio around a seven-day window that works 75% of the time and produces a little over a percent when it does. The transaction costs alone would eat most of the gain. And the 25% of the time it does not work? Some of those instances involve meaningful losses.

The September Effect

September is historically the worst month for stock markets. Over the past century, the S&P 500 has averaged a negative return in September – the only month with a negative long-term average. This pattern is consistent and well-documented.

But “worst on average” does not mean “bad every year.” September 2010, September 2013, September 2017, and September 2024 were all positive months. The long-term average is dragged down by a handful of catastrophic Septembers (the 2008 financial crisis, the 9/11 aftermath in 2001). If you sold your XEQT every August 31 and bought it back October 1, you would miss the positive Septembers and incur transaction costs during the negative ones. It is a losing strategy.

Tax-Loss Selling Season (November-December)

This one deserves a slightly different treatment because it actually has a rational basis for Canadian investors. In November and December, investors sell losing positions to realize capital losses, which can offset capital gains for tax purposes. This selling pressure can temporarily depress prices of certain stocks, creating potential buying opportunities in late December or early January.

However, for XEQT holders, this is largely irrelevant. XEQT is a broadly diversified ETF that holds thousands of stocks – the tax-loss selling pressure on individual names within the fund is diluted to the point of being undetectable in XEQT’s price. If you are interested in tax-loss harvesting your own XEQT position, I have a separate guide on tax-loss harvesting with XEQT that covers when it actually makes sense.

The bottom line on all seasonal patterns: they are either too small to be worth trading on, too unreliable year-to-year, or they disappear once enough people try to exploit them. None of them justify deviating from a buy-and-hold strategy.

5. Why XEQT Makes Seasonal Timing Especially Pointless

Even if seasonal patterns were strong and reliable – which they are not – XEQT is specifically designed to make them irrelevant.

Global diversification cancels out regional patterns

XEQT holds equities across North America, Europe, Asia-Pacific, and emerging markets. Different regions have different seasonal patterns. The “sell in May” effect, to the extent it exists at all, is strongest in European and North American markets. Emerging markets and Asian markets often have different seasonal cycles driven by different economic calendars, monsoon seasons, fiscal years, and holiday periods.

When you own the whole world through XEQT, regional seasonal patterns partially offset each other. A weak summer in North America might coincide with strength in Asian markets, and vice versa. Global diversification is a natural seasonal hedge – one more reason to hold a single all-in-one fund rather than trying to time individual markets.

Automatic rebalancing handles regional shifts

XEQT’s underlying funds are automatically rebalanced by BlackRock. If one region underperforms during a particular season, the rebalancing process adjusts allocations without you lifting a finger. You do not need to predict which region will outperform in which month. The fund does this for you.

Commission-free buying removes the friction excuse

One of the old arguments for seasonal timing was that you could “save on commissions” by making fewer, larger trades at optimal times. On Wealthsimple, buying XEQT is commission-free. There is zero cost to buying every week, every two weeks, or every month. The friction that once justified batching trades no longer exists.

Dollar-cost averaging naturally captures all seasons

If you are dollar-cost averaging into XEQT, you are buying in every month – January, May, September, all of them. Some months you buy at relatively high prices, some months at relatively low prices. Over time, you get the average, which has historically been very good. Trying to skip the “bad” months defeats the entire purpose of systematic investing.

6. What You Should Do Instead

If the seasonal approach is off the table, what should you actually do? The answer is boring, and I mean that as the highest compliment.

Set up automatic investments and buy every payday. Whether you get paid biweekly, twice a month, or monthly, route a fixed amount to your Wealthsimple account and buy XEQT on the same schedule regardless of the calendar. January, May, September – it does not matter. You can learn exactly how to do this in my guide on automating XEQT purchases on Wealthsimple.

If you have a lump sum, invest it. As I discussed in the lump sum vs. DCA article, putting your money to work immediately beats waiting for a “better time” approximately two-thirds of the time. This applies double to seasonal timing – do not sit on a lump sum in May waiting for November. History says you should invest it now. If you are worried about buying at all-time highs, the data shows that is almost always fine too.

Ignore seasonal chatter on social media and financial news. Every May, financial media runs “sell in May” stories because they generate clicks. Every September, they run “worst month for stocks” stories. Every December, they run “Santa Claus Rally” stories. This is entertainment, not investment advice. The talking heads need something to talk about. You do not need to listen.

Focus on your savings rate, not your entry timing. The single biggest determinant of your long-term wealth is not when you invest – it is how much you invest. Increasing your monthly XEQT contribution by $100 will do more for your retirement than any seasonal strategy ever could. As I explored in when is a good time to buy XEQT, the answer is almost always “right now.”

Here is a quick checklist for the seasonally tempted:

1. Is your auto-invest set up? If not, do that today.
2. Are you maximizing your TFSA and RRSP contributions? Focus here, not on monthly return patterns.
3. Do you have a 3-6 month emergency fund? This prevents you from needing to sell XEQT regardless of the season.
4. Have you looked at your XEQT position in the last month? If yes, you are probably checking too often. Once a quarter is plenty.
5. Did someone on Reddit tell you to sell? Close the app.

7. Final Thoughts: The Market Rewards Patience, Not Cleverness

I want to leave you with a simple truth that I come back to whenever I am tempted by a clever-sounding strategy: the stock market rewards patience, not cleverness.

Every hour you spend analyzing seasonal patterns, reading monthly return charts, and debating whether September is going to be bad this year is an hour you could have spent living your life while XEQT quietly compounds in the background. The entire point of buying an all-in-one global equity ETF is to remove yourself from the decision-making process. The fewer investment decisions you make, the better your outcomes tend to be.

My friend Marcus still holds his XEQT. He has added to it steadily through every month since that text he sent me last May. He does not check it very often. He does not worry about what month it is. He has a system, and the system works regardless of the season.

The people who try to be clever with seasonal patterns are playing a game that is stacked against them. The people who set up automatic XEQT purchases and get on with their lives are the ones who quietly build serious wealth over decades. It is not exciting. It is not going to impress anyone at a dinner party. But twenty years from now, when you look at the balance in your account, you will not care about being exciting. You will care about being rich.

Stop trying to time the seasons. Start investing through all of them.