Although history suggests that September is the worst month for stock market performance, October has thedarkestreputation.
The most famous correctionof all, the Wall Street Crash, started on 24October, known as Black Thursday. The next most famous crash, Black Monday, struck on 19 October 1987, when the FTSE 100 fell 12% in a day, and a further 14% next day. Since 1984, October has seen seven of the 10 largest one day falls in the market, according to new research from AXA Wealth.
Paint It Black
Even the crash that triggered the financial crisis startedin October when theFTSE 100 fell by 21% in a week, starting on 4October 2008.
Adrian Lowcock, head of investing at AXA, saysall of this may just be a spooky coincidence, but there may also be an underlying pattern. October is typically the month where we see volatility peak having begun to rise in September, he notes. September this year was certainly volatile, even ifthe FTSE 100 benchmark index ended roughly where it began, at 6061. So can we expect more black days to rememberthis October?
There are plenty of reasons to expect trouble ahead. China continues to slow, and a repeat of the recent Black Monday crash cant be ruled out. The Syria crisis has only been made more combustible by Vladimir Putins intervention. Japans last throw of the dice, Abenomics, is in the balance. Even 1 trillion of QE isnt enough to getEurope rocking again. New servicesdata shows the UK the G7s unlikely GDP growth star is also losing its mojo.Fridays disappointing US jobs report has made it clearthat the States isnt immune to the global slowdown.
Risk And Reward
There is one good reason why the FTSE 100 wont crash this week: it already has. It beganthis week down 14.5% on its April peak. Globally, investors have seenaround $11 trillion wiped off share valuesin the third quarter of 2015. Markets may be volatile but they no longerlook frothy, with none of the irrational exuberance that typically marks the run up to a crash. As share prices fall, stock market investing actually becomes LESSrisky, rather than more. Most novice investors assume it is the other way round.
A crash might come, nobody knows. But we do know that if youre investing for the long term, itis nothing to be scared of.
Crashing Good Fun
After the Black Monday crash of 1987, markets quickly recovered their losses. Within a year or two, globalstock markets were topping their pre-crash highs and continued to soar upwards. The only private investors who lostoutwere those who sold at the bottom,making it a really black day for them.
That is what happens every timemarkets crash. Which is why experienced investors welcome them, asa fantastic opportunity tobuy their favourite stocks at bargain prices.October can be a brutal month but you can also turn this to your advantage. Although daily volatility peaks in October and history shows that crashes are more likely, AXA figures showthe month has a good track record. It has returned 0.8% on average for investors, making it the fourthbest month of the year. So enjoy October, crash or no crash.
Turning a crash to your advantage by goingon a cheap share buying splurge is just one way to build long-term wealth on the stock market.
But to really make a success of investing, you have to combine this with other strategies.
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