The Stock Market Just Entered Its Worst Month of the Year. History Says This Is What Investors Should Do.

September has arrived. This means that investors need to prepare themselves for what's historically at least been the worst calendar month of the year for stocks.

Since 1928, the S&P 500 (SNPINDEX: ^GSPC) has fallen by an average of 1.1% during September. Historically, the index has produced positive results just 44.5% of the time.

Given the current backdrop of high inflation, a war in Iran, a mixed labor market, and possible rate hikes from the Fed, it would be easy for investors to think that the S&P 500 could pull back once again -- and to unload shares in advance.

History suggests, however, that this could be the wrong move.

Image source: Getty Images.

September's reputation only tells part of the story

There's no obvious fundamental reason why stocks should fall simply because the calendar enters a new month. More importantly, even a bad month is usually just a minor inconvenience for investors with long-term time horizons.

Consider that the S&P 500 has experienced dozens of corrections, bear markets, recessions, wars, financial crises, and other economic setbacks over the past century. Yet every time the S&P 500 has come back to eventually establish a new all-time high. Over that time, it's still been able to produce around a 10% average annual return.

Trying to avoid September's historical weakness creates other problems:

• September has still been positive nearly half of the time. That means investors could very well miss out on gains.
• Market timing requires investors to be right twice, once when they sell and once when they buy again. Get one of those two wrong, and you'll probably end up worse off.

That can be costly. Fidelity calculated that $10,000 invested in the S&P 500 at the beginning of 1988 would have grown to roughly $616,000 by the end of 2025. But missing only the five best trading days would have reduced the ending value all the way down to $380,000.

That's a difference of nearly a quarter-million dollars!

Here's what I'd do

Instead of trying to predict whether the S&P 500 will be up or down in September, I'd maintain my long-term perspective and keep up with monthly purchase schedules via 401(k) plans or other accounts. Here's the logic:

• If stock prices keep rising, you participate in the gains.
• If stock prices fall, automatic investing plans allow you to buy shares at discounted prices.

That's why keeping a long-term perspective and ignoring short-term volatility is so important. There will inevitably be more bad months, more corrections, and even a few more bear markets. Long-term investors don't necessarily need to try to avoid them. They simply need to maintain the discipline to ride them out and even take advantage of them.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.