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Buying On The Dips

Summary

Purchase securities after theyve fallen in value.

Buying and Holding is likely the better strategy.

Making a purchase of stock after the share price has dropped in value, is called Buying on the Dip.

Sometimes an event that affected a fund or company directly, or a drop in the broader stock market, can cause a drop in price. Buying on the dips is for investors seeking to add stocks to their portfolios: Dollar cost averaging is one startegy, and this simply means you regularly take a small amount of cash and put it into stocks on a sceduled basis.

In February, key indexes experienced a correction after they dropped about 10%. Numerous stocks lost value, but markets recovered quickly. There was a winter correction as well, that could have resulted in shareholders benefitting from rising stock prices afterwards.

When you buy on the dips, you earn about 1/3 as much: Youre keeping your investment in cash for longer periods of time than you would waiting for a stock to lose value. A savings account will only earn your cash a small amount of interest.

Buying and holding is definitely considered smarter than buying on the dips.

When you purchase a stock and hold onto it for a period of years, its called Buying and Holding, and youre more likely to gain more over time. Over the last 80 years, stocks have returned about 9%, with research indicating that return to be closer to 5.9%.

A bear market is when stocks lose 20% or more of their value, and some people wait extremely long periods of time for this event to occur.

When you buy on the dips, you encounter many problems. When you wait too long to buy a stock, it might recover most of its value. Not knowing when the stock has reached a bottom can pose a problem as well.