Financial Planning
October 26, 2023

The Halloween Effect

It’s fun to be frightened on Halloween, but some investment “wisdom” about the holiday is truly scary. Stewart has the hair-raising details in this week’s blog.
Stewart Willis

One nice thing about working in the financial advisory industry is you tend to learn something new almost daily. The other day, someone asked me if I’d heard of the Halloween effect. For the record, I hadn’t.


The Halloween effect suggests that stocks perform better in the months between Halloween and late Spring. As a result, the oft-quoted advice is to invest heavily around Halloween, then “sell in May and go away.” Readers familiar with my past blogs probably already have a pretty good idea of what I think of this notion.


Although there appears to be some truth to the idea that average returns are higher between October and May than they are May through October, this does not necessarily mean an investor should react by changing their investment strategy. There are several variables you should consider before taking action on financial information like this.


Average is… Average!

Advertisers know we have a tendency to skip over certain words while paying outsized attention to others, and they use that knowledge to craft their marketing messages. The average consumer, upon reading an ad for a cleaning product that “leaves surfaces virtually germ-free” will frequently interpret that statement as “leaves surfaces germ-free.” Internally, and often without even realizing they’re doing so, people drop the word “virtually.”


But that word is very important, because one definition of “virtually” is “not quite.”  Not quite germ-free is considerably different from germ-free! This psychological bias is exploited by advertisers every day to get you to think products are better or more effective than they really are. If we apply that tendency to the Halloween effect, we may gloss over the all-important word “average.”


Frequently, when we learn that something — on average — has certain characteristics, we leap to the assumption that those characteristics are innate to that thing. Learning that, on average, the Halloween effect is real makes us view it as always being real, which is not the case. If you decide to buy a lot of stocks before Halloween and this year turns out to be below average, you could suffer financially.


This boils down to one of the core tenets we believe in at Asset Preservation Wealth & Tax: Time in the market is better than timing the market. The investment company BlackRock conducted a study in which they considered returns on a hypothetical $10,000 investment in the S&P 500 between 2002 and 2022. The investor who bought in for $10,000 in 2002, then left it alone for two decades, would have gained an extra $20,000 over the investor who tried to time the market over the same period and missed just the best five days.


Think about that for a moment. An investment strategy spanning 7,300 days can be significantly degraded by just five days of missed opportunities. What if those five days happen to fall between October and May? Someone banking on the Halloween effect could suffer needlessly.


Consider the Sources

The Halloween effect is hardly the only financial planning adage of questionable value out there. There’s also the Super Bowl Indicator, which asserts that if an AFC team wins the Super Bowl, a bear market will result, while a sure sign of a bull market is for the NFC team to win. This could get interesting when combined with Super Bowl predictions: A goat has successfully “predicted” the winner of the last four Super Bowls; perhaps goats would make good investment brokers?


Whether the Halloween effect or the Super Bowl Indicator, financial “wisdom” of this kind boils down to pseudointellectual nonsense. It’s very unlikely your licensed, fiduciary financial advisor will tell you to make investment decisions based on a holiday or a sporting event any more than they would invest your money based on astrology or the phases of the moon. If the professionals are avoiding an investment strategy, it’s wise to, at minimum, find out why before you adopt it.


Trust Your Professional

That brings us to the crux of the matter: whether or not you trust your financial planner. Some don’t; I have had clients who wanted full control of their asset management. That’s OK! It’s their money, after all. However, that begs the question: Why are they paying me to manage their money if they want to make the money management decisions themselves?


If you have an investment manager, you need to be able to trust them. If you find yourself trusting random wisdom over their advice, ask yourself why: Is it because they have failed to meet your financial management expectations or because you are searching for the investing equivalent of a get-rich-quick scheme?


At Asset Preservation, we use money managers, including BlackRock, to drive our investment decisions. We picked the money managers we use based on their track record and overall approach to investing. We strive to use money managers with multiple different viewpoints; we know that no one is right 100% of the time, and a monolithic approach would virtually guarantee a bad result at some point. Our money managers do not ask us for input on their decision making; they do what they believe is best which is why I picked them.


If you look hard enough, you are likely to find a financial planner who will affirm a belief that a spooky holiday should drive your investment decisions, but what will that do to your investments? Your financial advisor should be there to advise you, not get advice from you!


The bottom line is that, especially with the rise of social media, there is a wilderness of information available to anyone about almost anything with a click of a mouse, and not all or even most of it is good. Making investment decisions based on shaky, unsubstantiated ideas is an unnecessary risk that puts your financial health and your retirement in jeopardy.


Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.


The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

Ready To Get Started?

You spent all your working years accumulating this wealth. Now it’s the time to make the most of it.