Opinion – From Grain to Grain: Find out in which month of the year fixed income gives the most return

In the financial market, it is conventional to present asset returns on an annual basis. Thus, when we calculate the average monthly return, we believe that the returns are similar in all months. However, returns vary greatly from month to month. The difference between monthly returns is up to 20%.

The convention of always presenting results on an annual basis facilitates comparisons. For example, consider two investments A and B. Suppose investment A has 3 years of history and investment B has 5 years.

Do you agree that if we rank the return over the entire period for the two investments, investment B may be erroneously privileged just because it has more time?

This convention also avoids asking at all times what the basis of presentation of returns is, whether it is per year, per month or in another period.

Another convention is the days for calculating the fixed income return.

In many countries, the calendar day convention is used to calculate profitability over a period. Thus, one would think that money “works”, that is, income every day, including weekends and holidays.

In Brazil, money only “works” on business days, that is, profitability is not calculated on weekends and holidays.

So when you get an appeal on Friday at the end of the day, don’t worry about missing the application time. Over the weekend, the money will “rest” whether invested or not.

Therefore, the return in each month depends on the number of working days.

The more holidays and weekends there are in a month, the fewer days there are for money to “work”.

Now, you can already imagine in which month the fixed income earns the least.

The month of February, in addition to having fewer days, still has holidays. Therefore, it is usually the month with the fewest working days.

However, this year 2022 was different. The month with the fewest working days was April. This month, there were only 19 business days.

Thus, considering the current CDI rate of 13.65% per year, the return in April of an investment that yields 100% of the CDI would have been 0.97% in the month.

The months that usually have the most working days are those that do not have holidays and that have 31 calendar days.

Sometimes the holiday falls on weekends. In this case, the month with the fewest weekends will have the highest return.

In this year 2022, only the month of August will have 23 working days.

Thus, it is the month with the highest return for fixed income.

Considering the current CDI rate of 13.65% per year, the return in August of an investment that yields 100% of the CDI would be 1.17% in the month.

Therefore, the month with the highest number of working days can yield 120% of the return of the one with the fewest working days.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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