Why Not All Dips Are A Buying Opportunity
Buying the dip means purchasing more shares (or cryptocurrencies, commodities or basically whatever you are invested in) when they have dropped in price, on the assumption that they will continue to rise in value. This is in line with one of the basic investment principle of buying low and selling high. But what most people forget when buying the dip is that the market falls fast but rises slow.
While the basic investment principle of buying low and selling high stands true, timing the market on such “dips” may be hard as you may face risks of prices continuing to drop. Will this be a temporary dip, or one to be followed by another dip, or a plunge that will last for some time, or worst a downward spiral and you see yourself catching a falling knife. You might not be able to see gains on the investments in months or possibly years, making it a riskier decision for the average investors.
A lot of analysts have commented that the market is ripe for a correction or a pullback, as the world recovers from the pandemic with the help of stimulus packages from federal governments. While at the beginning a lot of new investors were excited for the dip and monies were being entered into the market, however a lengthened period of dips or plunge may cause fear and uncertainty.
Just because it’s cheaper does not mean it has value. If you are risking all your savings relying on the dip to have a quick rebound and make quick gains, perhaps you might want to rethink your investment strategy. Buying during the dip might make you feel better as you are averaging down, but don’t trick yourself into thinking that buying on the dip is a definite way to increase your investment returns.
At the end of the day, it is still about your own investment risk and horizon. Just because everyone else is doing it, does not mean you should too.
