U.S. stocks have recently taken a tumble. But what does this mean for investors? Many may wonder, “is it time to start buying the dip in stocks?” We spoke to some experts to find out just that! Read on to see what they have to say.
Consider Dolla-Cost Averaging
Chad Rixse, a wealth advisor from Forefront Wealth Partners, says:
“It’s difficult, if not impossible, to time the markets, so long-term, consistent strategies almost always win in the end. One of the most effective strategies that employ this methodology is “dollar-cost averaging,” where you invest a fixed dollar amount at fixed intervals (e.g., monthly).
This helps eliminate much of the decision-making in the question of “when to buy” and boosts total returns in the long run by minimizing the short-term impacts of volatility on your cost basis.”
Buy Low Sell High
Sammie Ellard-King, Founder of Up the Gains – Money Made Simple, explains:
“It is always a time to buy. Whether that be buying the dip, buying the top, or buying the middle. If you dollar cost average into the market each month, you will benefit from an average price point that is lower than your peers in the long run.
Buying the dip works, so if you’re looking to put some capital to work, the old saying still resonates. Buy low, sell high and the market is definitely low right now!”
Shaun Martin, the CEO of Denver Home Buyer, says:
“The stock market has been on a roller coaster ride over the past few weeks, with sharp swings up and down. This has left many investors wondering if it’s finally time to start buying again after months of avoiding stocks.
The overall market is still down significantly from its highs. While some stocks have recovered somewhat, many are still well below their pre-pandemic levels. This means there is still significant potential for gains in the future.
For now, it’s important to remain cautious and wait for the market to stabilize before making any major moves. But if you’re looking to start buying again, there are a few things to keep in mind.
First, focus on quality companies that have solid fundamentals. These are the businesses that are most likely to weather any further economic turmoil and rebound quickly when the market recovers.
Second, don’t try to time the market. It’s impossible to know exactly when the bottom will be reached, so it’s best to start buying gradually and add to your positions over time. Finally, remember that stocks are still a riskier investment than some other options, such as bonds. But if you’re willing to take on a little more risk, stocks offer the potential for much higher returns over the long run.
If you’re considering buying stocks again, remember to stay patient and focus on quality companies. With a little research, you can find some great investments that will help you weather any future market volatility.”
Calculate Risk-to-Reward First
Elena Jones, founder at Finance Jar, explains:
“You must comprehend what a dip is to comprehend what it implies. It occurs when the price of a stock with an upward trend declines, and it may be the best way to invest. To optimize their repayment, market participants pause for the ideal moment to purchase. A savvy merchant will wait for the ideal configuration and unique opportunity. Every merchant has a unique perspective on the matter.
Risk-to-reward proportion needs to be calculated. The share price could be in a declining trend and going to the tank rather than genuinely being about to dip and rip, which is always a possibility. There have been some significant adjustments in the market, which is where we currently stand. Nevertheless, the historically high level of anxiety among investors has stood out to us.
The American Association of Individual Investors conducts a questionnaire of independent lenders to measure if they are hawkish, deflationary, or unbiased regarding the short-term direction of the financial markets.
Individual investors are far less optimistic now than they had been in the years leading up to the dot-com bubble, the 2008 banking meltdown, and the COVID wreck.”
Remember the Markets Can Take a While to Recover
Jeremy Wagner, a Financial Analyst at Trading Pedia, tells us:
“Many believe that buying the dip is a wise investment strategy, as it allows you to buy assets while they are undervalued and then sell them when they recover. However, this strategy carries risk, as the market’s recovery can take months or years. This is especially true in today’s market, which is gravely impacted by inflation at a record 40-year high of 8.6%.
Ultimately, buying the dip will depend on your ability to hold your money in the markets for an extended period. This is because the recovery of the current market remains to be seen. Buying the dip may be a smart move if you can afford to take on more risk. Those who can stay in the market usually yield higher returns in the long run.
On the other hand, buying the dip may not be ideal if you need your money sooner. You could lose more than you anticipated if the market doesn’t bounce back as quickly as you hope. In this case, it may be best to sit on the sidelines and wait for the market to recover.”
Look at the Intrinsic Value of a Company First
Matt from The Wahman says:
“No one can ever consistently predict or buy the market bottom, not even the experts. The best advice is to buy a company when the price is below the intrinsic value. The dip has recently re-valued many companies to prior COVID levels, allowing investors to start making great long-term entry positions. However, if a recession does eventuate, we will likely see further downside in the market.”
Make Sure to Do Your Research
Daniel Foley, Founder of SEO-AUDITS.IO, explains:
“A friend called me last week and advised me to pick a specific stock at a price that is 40% cheaper than it was the week before. They warned me I would miss out on a significant investment opportunity in this business if I didn’t buy soon.
I established a financial rule last year to avoid making decisions based on fear to manage my money wisely. While this person is certain that now is the greatest time to purchase the stock, they may be mistaken because it is impossible to predict whether the price of a stock will continue to climb or decline from where it is at the moment.
I care most about financial decision-making that is supported by research, professional opinion, and a plan that I developed on my own or with a financial planner, even though I might lose out on buying at the correct time.”
Buying the Dip is Almost Always Risky
Megan Young, Marketing Manager at MCS Rental Software, tells us:
“The one and the only way to succeed as a buy-the-dip investor is to have faith in the stock’s potential future appreciation. However, this technique carries a higher level of risk because the stock’s value may never recover, or continue to decline.
You might not get your investment back in those circumstances. In either case, buying the dip requires a degree of risk I don’t feel comfortable, knowledgeable about, or motivated to take on.”
Final Words: Is it Time to Start Buying the Dip in Stocks?
It seems as though most of our experts agree that buying the dip is indeed a risky move. However, with the proper research, the weighting of risk vs reward, and patience, this strategy can sometimes be profitable. It is vital to make sure that you can afford any losses that may occur when you choose to buy during a dip in the market, and never invest more than you can bear to part with in the long run.