Should You Really Sell in May and Go Away? Ep # 86

On this episode of Retirement Starts Today I tackle the age-old question: should you sell in May and go away? This is a question you may hear each April and May so we’ll talk about where it came from and why people say it. We’ll also discuss a big idea from Nobel laureate, Richard Thaler, who has an interesting thought about what to do with your 401K. And lastly, I answer a listener question about inherited IRA’s and RMD’s. Listen to this episode of Retirement Starts Today to hear my take on the latest retirement headlines.

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Outline of This Episode

[2:55] Sell in May and go away
[7:18] Richard Thaler’s big idea
[13:45] A listener question from Tony

Why do people say to sell in May and go away?

After having the best month of April in the markets in a decade many people may be wondering what comes next? Over the next few weeks, you may be hearing the old adage sell in May and go away. What does this really mean, why do they say it, and where are you supposed to go? When people think of investing they think about the calendar year from January to December. Those that use the saying sell in May and go away do so because historically most of the returns you experience in a calendar year come between the months of November and April. The returns in the latter part of the year tend to be more sluggish. The recommendation is that you get out of the market in May and then jump back in October or November.

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Can you win the market timing game?

The saying ‘sell in May and go away’ just a cute way of telling you to try and play the game of market timing. But playing the markets by jumping in and out is like playing a game of roulette. Even if you get it right 4 out of 5 times you could negate all of your earnings during that 5th year. Jumping in and out of the market is a great way to rack up transaction costs and make your broker very happy but its not a sound long-term investing strategy. The best plan, as always, is to create an investment strategy and stick with it.

A renowned Nobel laureate wants you to boost your Social Security payments with your 401K

Richard Thaler is a Nobel laureate for his work on behavioral economics so he knows a thing or 2 about people’s economic behavior. He proposed the idea that Americans should use their 401K’s to boost their social security payments. So, why does he think this is a good idea? Well, because living off of your savings is probably the hardest financial thing you will ever do. It is such a complex process that there is an entire industry dedicated to helping you figure it out. He thinks that by giving a portion of your 401K to the Social Security Administration they can help you dole out the money over the course of the rest of your lifetime. His thought is that they already have the infrastructure in place to do this and they do it well. What are my thoughts on this proposal? Listen to this episode to find out.

Living off of your #savings is probably the hardest financial thing you will ever do. Start educating yourself by listening to this episode of #RetirementStartsToday Click To Tweet

Inherited IRA’s and RMD’s

Tony asked a question about an inherited IRA. His wife inherited a portion of her father’s IRA and although she is only 55 she has to take an RMD. How is this calculated and how should they invest this inheritance? Well first off, what is an RMD? An RMD is the required minimum distribution that you must begin to take at the age of 70 ½. As you save into your IRA and 401K you aren’t paying taxes on it, the taxes are deferred until later. The RMD is there to ensure that you pay taxes on the full amount. The RMD is calculated on an increasing scale each year. Listen to the rest of the answer to Tony’s question to hear how to calculate your RMD and how you should invest if you receive an inheritance