“Sell in May and go away, don’t come back till St Leger’s Day”: More than just an old wives tale?

St Leger’s Day is nearly upon us. The world’s oldest horse racing classic takes place at Doncaster Race Course on 10 September – and, if you know your stock market sayings, this is the moment to get back into the stock market.

“Sell in May and go away, don’t come back till St Leger’s Day”, is a stock market maxim that has been doing the rounds for generations. But before you dismiss it as old wives’ tale, you might want to study the data.

According to the Stock Market Almanac, since 1986, the UK stock market has delivered an average return of 8.58 per cent a year during the winter months, but only 0.35 per cent over the summer. In fact, the record shows investors have actually lost money during the summer months in 15 out of 29 years.

Looking much further back, this phenomenon has been in evidence for much of the past 300 years. And the UK is not the only market to have experienced this effect – one international study found evidence of the same trends in 36 out of 37 countries examined.

Academics who have studied these figures have never really come up with a convincing explanation for them. One suggestion is with fewer trades placed over the summer months, when investors are more likely to be on holiday, market volatility tends to be higher and the potential for losses rises, but that’s only a theory. Still, while no-one has proved the case, the numbers do beg an obvious question: should stock market investors sell up on 1 May and then buy back in during September each year?

Probably not. For one thing, the headline numbers don’t take into account transaction charges – it costs money to buy and sell investments. Anyway, while the numbers suggest investors have sometimes done less well over the summer, there have still been many periods where they’ve made positive returns; in which case anyone selling out has missed out. In fact, the Stock Market Almanac suggests that a buy and hold strategy in operation since 1986 would have returned an average annual gain of 8.96 per cent – significantly more than a winter-only approach to investment.

The other crucial issue is that analyses of long-term stock market returns largely ignore the effect of dividends. Investors in the stock market earn returns in the form of dividend income as well as capital gain so you need to consider total returns when looking at long-term performance. Many investors choose to reinvest their dividends which adds to their returns over time.

So what is the best way to manage the ups and downs of the stock market? Well, for very many investors, the most effective strategy is to make use of a regular savings plan, allowing you to deposit relatively small amounts of money in a fund each month. The idea is to instil savings discipline, with a monthly direct debit that automates your investments and removes the temptation to try to second-guess the markets.

Drip-feeding money into investments in this way also has the added advantage of giving you access to pound-cost averaging. This is the statistical quirk that smooths out stock market volatility over time – the idea is that in months when your fund has fallen in value, your fixed month investment buys more shares or units in it, adding to the value of your holding when prices recover.

Investment companies are an excellent place to start with regular savings, with many funds offering minimum monthly contributions of as little as £50, or even less in certain cases. This is a cheap and simple way to build up long-term stock market exposure.

The sums build up surprisingly quickly. Data produced by the AIC earlier this year show that a £50 monthly investment in the average investment company between September 2007 and January 2016 – a total investment of £5,000 – was worth £7,402.