Fear can create chaos, which is why many investors see the economy taking a dive and make panicked decisions. A bad economy can be intimidating to even the most seasoned investors. However, developing a stock market investing strategy is all about not feeding into emotions. In fact, it might even be worth buying the dip when things look rough. When prices are down, you can buy with the mindset that the market might hit an upward trend and you’ll see some gains.

So, when is it a good idea to buy the dip? Even in a bad economy, these are some methods you can use to ensure you’re making a good decision.

Key Takeaways:

  • Long-term investing is the key to a solid stock market investing strategy.
  • Reinvesting dividends can be helpful.
  • A volatile market isn’t necessarily a bad market.
  • Even out your dollar-cost for improved long-term gains.
  • Don’t lose money by not investing.
  • Set a stop-loss to avoid losing cash.

Infinity Investing Featured Event

In this FREE event you’ll discover how the top 1% use little-known “compounders” to grow & protect their reserves. Our Infinity team of experts show you how to be the best possible steward of your finances and how to make your money and investments work for you instead of you working for them. Regardless of your financial situation today, you’ll have a road map to get to where you want to be.

You Know the Benefits of Buying the Dip

Before you decide to buy the dip, you need to know why so many investors are on board with this strategy. When you buy the dip, you purchase a stock when it has fallen from a higher value. You can buy the price on a decline with the idea that it might be a short-term situation. Essentially, you could be getting a bargain on a stock you expect to bounce back and perform at or above its previous level.

You Want to Buy Dividend-Paying Stocks

Dividend-paying stocks often provide the most steady income, and they’re great options for times when you want some protection against inflation. Plus, you’ll see returns in your pocket quickly. You can choose to reinvest some of these dividends for a bigger return during the dip. You can see a faster return if you buy the dip with these stocks.

If you prefer a long-term investment, consider S&P 500 index funds, where you’ll often see long-term returns. Even if it looks like the market might take a longer dip, these types of funds can provide more protection. You’re not as likely to lose money when you make these kinds of investments.

You’ve Checked Market Volatility

With rising interest rates, inflation, and other economic issues, you can expect some volatility in the market this year. Many issues affect the stock market, and it’s important to accept that you won’t be able to factor in everything that could happen. You might find it’s a good idea to buy the dip if you understand that the market is volatile and that you can still see great gains if you buy a “volatile” stock. The key is to make a decision based on information rather than pure speculation.

You Set a Limit on Uninvested Cash

One smart stock market investing strategy is to ensure you are investing enough money to see results. You can set a limit on the cash you have available but don’t invest. For example, some investors choose to make sure they keep no more than 10% of their cash uninvested. You might choose to buy the dip when your uninvested cash seems to grow. This means you won’t be missing out on lost potential income because you have so much cash sitting in the bank.

Photo 1559526324 593bc073d938

You Already Own Shares

If you already own shares of a particular stock, you might find buying the dip to be more lucrative. When you already own shares in a stock, you can buy more in the dip to average your dollar-cost. This can help even out fluctuations in your portfolio. Some platforms allow you to add a set amount of money to a stock each week or month so you can spread your investment out over time.

Ultimately, evening out your costs means you don’t have to make emotional decisions in a bad economy. You won’t be making decisions out of fear, and you’ll keep your typical cost per share closer to average. This is a great option if you want to build a long-term investment plan and keep participating in ventures even when the market stabilizes.

You’ve Set a Stop Loss

When you set a stop loss, you’ve set a price at which you will automatically sell the stocks you own. For example, if the price of a stock drops from $30 to $25, you might decide you’d like to set a stop loss at $23 so you can avoid losing money. If the price hits $23, the stock will sell automatically. You’ll reduce your risk and avoid losing money after you buy the dip.

If you buy a dip and have no clue how a stock will perform in the future, you might benefit from setting a stop loss on the platform you use to buy and sell stocks. This means you won’t have to sit on your computer or phone all day waiting for the perfect time to sell a stock you bought in a dip.

The Stock Doesn’t Have a Reason to Decline

One way to assess a stock is to consider why it might decline. You might need to perform some analysis, looking beyond a dip in the economy. For instance, you might opt to buy the dip in a stock that has staying power. A company with a tried-and-true reputation is more likely to deliver than a company that is new on the scene.

Develop a Stock Market Investing Strategy

Of course, it’s not always a good idea to invest in the dip. Timing the market accurately is extremely difficult and even impossible at times. Even though you can’t predict a decline or the exact effect it will have on the stocks you buy, developing a long-term strategy is key.

Long-term investing is crucial for buying the dip. Look beyond what buying one dip can offer and instead consider the long-term benefits of adding this strategy to your investment portfolio.

Infinity Investing Featured Event

In this FREE event you’ll discover how the top 1% use little-known “compounders” to grow & protect their reserves. Our Infinity team of experts show you how to be the best possible steward of your finances and how to make your money and investments work for you instead of you working for them. Regardless of your financial situation today, you’ll have a road map to get to where you want to be.