Wednesday, 21 July 2021

Buy the dip! | What if the dip keeps dipping?

Seeing a sea of red after quite awhile, though I don't think this dip has been very crazy yet but I have put some funds into the stock market. Buying the dips is what you frequently hear in both the stock market and also for cryptocurrencies as both of them are dipping. Buying the dip is when investors view this as an advantageous time to buy or add to an existing position which helps lower their average cost hence profiting when the market goes back up. However, with limited funds, what happens if you bought the dip and then it dips even further?

No one can truly time the bottom

You might be able to buy at the bottom for some but it is definitely not possible to buy every single time right at the bottom because no one can predict if the price is really the current bottom. I put some funds in as part of my DCA monthly as I shift from FSMone to interactive brokers. This means I have some flexibility in entering. I didn't enter during the bottom but at a price was relatively lower than the ATH. It is no use thinking when you can enter, best way is to enter a price and limit it accordingly, I like to use GTC (good till cancelled). So if it hits the desired price then it will buy in.

Don't chase the bottom if you have no more funds

I have had a previous experience of chasing after the bottom and even use a portion of my emergency funds which was not a good experience as I needed to build it up again and it does make me feel a little anxious on why I wanted to dip into my emergency funds. I promised myself that I shouldn't be doing that as it can affect my routine as I do set aside some funds monthly although not much considering I have a monthly DCA plan which I like as it has brought me gains from when I started as compared to my individual stock purchases.

So from there, I was able to structure a plan for myself making sure I am not going overboard with chasing the lows even if it really looks attractive. Of course, if you do have a sum of funds set aside, you can slowly enter in tranches accordingly. Everyone has their own plans for example I do have a friend who prefers lump sum investing hence he would save for a few months before getting into the market which saves him commission costs. For me, I prefer DCA monthly to ensure I am invested as soon as possible rather than leaving the cash around, this in turns incurs more comission fees but I like it as buying the index earlier has so far been beneficial for me.

Stay calm and do nothing

Some times, doing nothing is the most difficult part of investing. If you do not have any funds, doing nothing to your portfolio is also beneficial (meaning no selling) as we know that in the long term, the market goes up. Of course, past results does not mean future performance but we know that in the long term, markets generally go up especially so if you bought S&P 500 so doing nothing means that your portfolio will recover eventually. A lot of people panic and sell or get out of a falling market as they are afraid of seeing the value of their portfolio drop. Some feel it is better to get out first then when prices drop, they will get in again. However, if you have consistently been buying from the past, are you sure that the prices will drop to when you had purchased them?

Having to sell or liquidate your positions at a lower price also means that you might be losing out and you will also have the dilemma of when to enter the market again including the commission charges involved. In other news, dining out is suspended till 18 August 2021 as the number of cases in Singapore is increasing and many more clusters are discovered. It is a tough time for the F&B and service/tourism industry. Hoping that the situation can improve. Wishing everyone good health and stay safe.

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