Stocks: Sell in May and Go Away?

Using these characteristics to decide whether to hold on to a stock can be part of a sound overall rationale. Unlike deciding to dump stocks just because the calendar has flipped to May, you should make informed judgments based on these and other criteria.

A less arbitrary reason to sell is rebalancing — restoring your stock portfolio's original asset allocation (its percentages of individual types and sizes of companies). This is a defensive move to protect against significant downturn in any one sector or company. A classic defensive strategy to reduce risk, rebalancing often makes sense, but it can be taken to the point of obsession if you're dumping performing or promising stocks just to maintain your asset allocation. This is like dumping the baby out with the bathwater.

While selling to rebalance is widely overdone, it make a lot more sense than selling based on a silly slogan.

This column is the opinion of the author and in no way reflects the opinion of ABC News.

Byron L. Studdard, a CERTIFIED FINANCIAL PLANNER™, is founder and president of Studdard Financial, LLC, a financial advisory firm in Sarasota, Fla., dedicated to helping clients build wealth, protect it and pass it on to future generations. Studdard is listed in the Guide to America's Best Financial Planners (published by the Consumers' Research Council of America, an independent research organization). He can be reached at Byron@studdardfinancial.com. If you have a question for him, send him an email and he will try to answer it in an upcoming column.

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