In the long run, slow and steady stock-buying easily beats trying to time market dips, experts say
Personal Finance
Perspective
In the long run, slow and steady stock-buying easily beats trying to time market dips, experts say
Heres why a 'buy the dip investment strategy doesnt work
By Michelle Singletary
Columnist
Today at 7:00 a.m. EDT
Some investors clutch their hearts when the stock market dives. Others see an opportunity to dive in and buy the dip. ... As indexes such as the Dow and S&P 500 took a
sharp drop recently, people started tweeting #BuyTheDip. The S&P fell 1.7 percent Monday, its worst day in two months, noted Callie Cox, senior investment strategist with Ally Invest.
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Dan Egan, director of behavioral finance and investing at the online investment firm Betterment, said he understands why people gravitate to a buy the dip strategy. Psychologically, it can get people off the investing sidelines. ... It does give you this sense of confidence of, Well, at least I didnt buy at the top, Egan said. Its a way of minimizing regret and feeling comfortable with getting invested at a specific point in time.
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But Egan and Cox warn about being overly confident about this strategy. ... When the stock market is going through a sell-off, you may not be able to buy the dip, because of your emotions, Cox said. Buy the dip is one of those things that works really well on paper, but it doesnt work well in real life. Its something that I personally struggle with because as an investor, I want to buy the dip, but Im human and sometimes I dont feel good when the markets going down. Buy the dip is market timing.
Buying on dips doesnt necessarily guarantee better returns, they said. While you wait for a downturn, you could be missing out on significant upturns in the stock market. ... The issue with buying the dip as a strategy is that you can end up sitting out of the market for those long periods of time when it rallies, Egan said.
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By Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column The Color of Money. Her award-winning column is syndicated by The Washington Post News Service and Syndicate and is carried in dozens of newspapers nationwide. Twitter
https://twitter.com/SingletaryM