Weekend Reading – Should you buy the dip?
Hey Everyone,
Welcome to some new Weekend Reading, wondering: should you buy the dip?
Before my answer, here is my most recent post about navigating the recent market smackdown!
Weekend Reading – Should you buy the dip?
Yes.
Let me explain.
As we all know by now, the financial industry loves clichés…
With investing you usually get what you don’t pay for.
In the financial markets, people often sabotage their portfolios out of sheer boredom.
And so on.
One phrase you’ve probably also heard of when stocks tank or correct is a call to action to: “buy the dip”.
Catchy, yes.
Smart too!
Inspiration for this post came from Ben Carlson – A Wealth of Common Sense this week.
He: “…looked back at the end of every month the S&P 500 was in a 15% peak-to-trough drawdown or worse since 1950. Then I looked at the forward 1, 3, 5 and 10 year total returns from there.”
Here is what he found:
“….most of the time buying when the stock market is down double digits tends to work out for long-term investors.”
Indeed.
In this post on my site, I found the following when it comes to how often stocks go up from the Canadian context.
That’s a lot of growth you could be missing out on – if you don’t “buy the dip” and remain invested.
Remember, the returns you get (eventually, over time) from owning a collection of stocks tends to be the price you pay for near-term volatility; as painful as those market smackdowns may be.
My own “buy the dip” example occurred just this month.
When I saw one of my favourite low-cost ETFs that I own (XAW) dip in price (going down more than 10% is my target; under $40 after it started the year north of $44) I bought the dip.
Source: Google Finance
There are some positive outcomes when you “buy the dip”:
- You are buying your favourite low-cost ETFs or stocks on sale at cheaper prices even if you never get the perfect bottom price. (I don’t care about perfect timing anyhow.)
- You can put idle cash to work since cash is likely to be a loser to long-term inflation and stocks typically are great inflation fighters.
Accepting you and I cannot perfectly time the market even if we tried, a decent enough approach is to “buy the dip” when your desired equities drop more than 10% in value. That has been a reasonable approach for me.
It has been said when you invest, you are buying a day you don’t have to work.
I’ve always felt it was best to get my money working for me, when I have it, available to invest. I’ve followed this approach for about 20+ years now. So far, so good – we’ve built a seven-figure investment portfolio to start semi-retirement with.
In a link below, you will find that DCA (Dollar-Cost Averaging) investing approaches can also work very well over time too – investing fixed amounts over fixed intervals.
Just remember with any equity investing approach you choose:
Owning stocks can be risky in the short term. Not owning stocks will be risky in the long term.
More Weekend Reading – Should you buy the dip?
“From a valuation standpoint, it is hard to argue that stocks are unusually attractive,” Gabriel Dechaine, an analyst at National Bank of Canada, said in an April 6 note…
After 15 years of blogging, I still love helping others navigate their investing path and running this site.
In this podcast with Vero from @DividendGuy, I shared my saving and investing journey from paper routes (remember those??) to FIWOOT today (Financial Independence, Work On Own Terms).
🎙️ Have a listen!!! thedividendguyblog.com/213
Reaching FIWOOT with Dividends – Mark from My Own Advisor [Podcast]
A good read here from Morningstar, about the potential fate of our Canadian dollar.
A nice summary from Dividend Growth Investor on his retirement income strategy. Some quotable items from his list that I know would appeal to many of my readers:
“If the economy is doing great, businesses will be earning more and paying higher dividends. I may even generate more in dividends than I need.
If the economy is doing terribly, and we get a once in a generation depression that knocks down profits, to the point like dividends are lowered en masse, I will curtail my spending to the amount of dividends received. That flexibility, and adaptability to the current environment, versus relying on a bulky academic model, is really appealing to me.
I love the idea of living off the returns generated today, not the historical or theoretical returns we read about in a study.”
A thank you to Rob Carrick @rcarrick from The Globe and Mail for mentioning this post below in his popular Carrick on Money newsletter.
These are some big investing and semi-retirement mistakes I hope to avoid.
How many have you avoided?
Save, Invest, Prosper!
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Have a great weekend!
Mark
Mark
My name is Mark Seed – the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I’ve reached financial independence. Now, I share my lessons learned for free on this site. Find out what I did and how I reached financial independence to tailor your own path. Join the newsletter read by thousands.
