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Buying the Dip: what does that mean?

Buying the Dip: what does that mean?

May 08, 2019

I didn’t expect to write a blog about this subject, but I just couldn’t pass up the opportunity to review a great piece of financial pornography put out by Marketwatch.com. 

I find this terribly funny (pun intended)!  We are down only a couple percent (if even that) from all-time highs.  I find it humorous that this “expert” (a loose term) is defining this as a dip. However, his article brings up a serious question.   

When I talk about a dip in the market, I often talk about it in terms of a buying opportunity.  But what constitutes a buyable dip?  This is something we definitely need to define!  AND, if we define it now (before we have one), it will make our life less stressful later.

Let’s think about this!  First, let’s remind ourselves that goal is to buy low and sell high (investing 101).  Buying into a dip is one way to force us to buy low.  However, buying into a dip when the market is down a couple percent from an all-time high may not leave any buying power should the market go down 10%, 15% or 20%.  If you consider a “buyable dip” to be 20%, you may miss out on pullbacks that never get that far.  How much downside is noise and at what point do you cross over into a buyable dip?  There is no right answer – only the one that makes you comfortable. 

I believe that the key is to have a pre-determined level at which you would “buy the dip”.  We could develop a plan and commit to what constitutes a dip for YOU.  This plan can help you avoid the news of the day and the emotion it brings.  Plus, it will help you to make a sound financial decision.

Do you want to have a rule around “buying the dip”?  Would you like to think about scenarios?   It’s a very personal thing.  But, defining that value can help you feel more “in control” when markets get a little crazy. 

Let’s have that conversation.  You can reach me at 612 436-3733 or jgilles@financialplanpartners.com

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.