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Posted on 8 October 2011 | 4,362 views

October is not the Worst Month for Stocks

Stocks ended a volatile 2011 third quarter on a down note — finishing the quarter down 12 percent, the largest drop since the credit crisis.

Last quarter was one of the most volatile ever for the markets, the month of August saw moves of more than 400 Dow points on four consecutive days and the quarter saw 18 days with moves of more than 200 points for the Dow.

Most investors are aware of the crash of 1929, and many remember the crash of 1987, both of which occurred in October. In October of 1997, the Dow saw a 550-point one-day drop and the Long Term Capital Management/Russian Ruble Shock happened in October.

Should investors take their money out of the market and stuff it under their mattress this month to wait and see what happens?

Before you do, an analytical look at the month of October historically reveals some interesting facts. Since 1928, October is the seventh best month for the Dow Jones Industrial Average — 58% of all Octobers have recorded positive returns.

Statistically, October is a month that has a history of ending bear markets. The Bear Markets of 1946, 1957, 1906, 1962, 1966, 1974, 1987, 1990, 1998 and 2002 all ended in October — December, January and July have also tended to be the three of the four best months of the year to be invested in the stock market.

Based on statistical data, historically September has proven to be one of the worst months to be invested in the stock market. What an individual investor should do now depends entirely on their individual situation. Factors such as age, risk tolerance, dollar amount invested as a percent of net worth, etc., should all be taken into consideration.

No one knows what will happen for the remainder of the 2011 stock market — the Euro Zone needs to get its house in order and there is a possibility of a global economic slowdown. Investors who stay in the market during turbulent times can always consider using hedges such as — index put options, inverse ETFs and volatility based ETFs.

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