September is here — should we be nervous?

We're barely into September, but already two mutually-reinforcing things have happened:

1. A plethora of "September is the worst month for the market" news items have been generated; and
2. The market took a dive on the first day of the month, as if to announce its arrival!

Here's the background: September does in fact have a well-earned reputation as the worst month for the stock market.

And it's not just the long-term averages providing reason to get antsy. Some would wonder if the long-term averages are skewed by a handful of really bad years. If so, that would seem to imply that maybe years when stocks are rallying are immune to this mysterious September effect, right?

Wrong. As this article points out, years when stocks were up year-to-date, up from June-August, and up in August by itself actually produced worse than usual Septembers. In fact, September saw losses in all but 3 of the 17 instances that met that "markets have been rallying" description (though in fairness, the average September loss was just 1.73%, hardly devastating).

What's behind this September trend? No one really has put forth a compelling explanation as to why stocks tend to struggle so much in September. One plausible explanation has to do with institutional investors selling in order to take losses before their year-ends, most of which occur either Sept 30 or Oct 31.

Others argue that as the pattern has become more widely known, it has become something of a self-fulfilling prophecy.

While stocks have tended to perform poorly in Septembers past, another market has fared very well in that month: Gold. In fact, over the past two decades, September has been the strongest month for gold, rising an average of 3.4% for the month and finishing with gains in 16 of the past 20 years.

What should you make of all this? Probably very little. Valid historical pattern or not, the losses we suffered yesterday on Sept 1 already exceed the average loss for past Septembers. So you could just as easily argue that on average, we should expect the rest of the month to be flat to slightly positive.

Better yet, don't sweat what's likely to happen over the next four weeks. Keep your investment gaze appropriately fixed on the distant horizon (at least five years). When you do that, the performance of the next 30 days looks like a tiny blip.

If anything, those who have been surprised at the rally's strength might look to any September weakness as a potential buying opportunity. The market has been going up for six months now without experiencing any type of significant pullback. Market sentiment has gotten quite bullish. Several factors seem to be aligned for a pause or pullback.

So if you've had money on the sidelines that you've been itching to get back into the market as you watched this rally go up, up, and away, September could well provide a decent entry point. If that's you, thinking through what that looks like in advance will help you be more likely to actually pull the trigger should the opportunity present itself.

For everyone else, sit tight and don't get spooked by all the "September is bad for the markets" hype blowing around this week. It is in statistical terms. But the reality is that these average losses for the month are pretty small numbers - smaller than what we've already had delivered in the first two days of the month. So stick with your plan and ignore the headlines. Maybe this September the market will be up, maybe it'll be down, but five years from now you're not likely to remember one way or the other.

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Mark Biller is Sound Mind Investing's Executive Editor. Visit www.soundmindinvesting.com to learn more.