Overall, I’m a dollar-cost averaging investor so I do receive some benefit in my account when the market has dips.
However, when the market has days where it dips 600 points in the DOW in one day, I still feel the pain. Or at least I did in the past.
These days as long as the stocks that I own have value, I just let them ride. It’s never good and quite disheartening to cash out at the bottom of a deep dip in the stock market, only to see it rebound the next day. When I was younger I would occasionally make this error, but now I just leave the stocks I have invested in the market go because the stocks that bought have a good story and financial figures.
Still, it’s a bit painful to watch the value of your portfolio drop, so I created a little distraction to take some of the pain out of a downturn in the market.
Here is what I do:
- Keep a small position in cash that I use for play money (not much, just a few thousand)
- I divide the money into 2 or 3 parts.
- I follow and invest in a favorite stock that I know very well.
- I buy the stock as long as the market falls (and the stock falls in price too).
- I do the purchase of the stock in a Roth IRA, that way I avoid the capital gains tax.
- If the stock market falls by another large percentage, buy more with the second amount.
- If I have a third amount, and the market continues to drop, I buy with the last amount.
- Next I wait for the market to recover, knowing that I got great low positions on my purchases of my favorite stock.
This process is what I use to take the bite out of a down market. It’s more of a game than a real investment strategy, but at least I’m not as upset when the market is in a downward spiral.
There you have it,
MR
Good strategy! If I were investing a large sum of money, I would do exactly the same.
Thanks. I’ve had money sitting on the side for a while now, and now I thought I’d bring it into play…
Good way to manage the markets dips. After this Friday, I plan on posting how I dealt with the dip.
Thanks, not as good as your option strategies, but for for a mere moral like me… it’s okay…
I like that method of using your Roth IRA and buying in three stages. Treating it as a game also makes it way more fun! -Sydney
I ignore the 401k funds and other stocks that have solid stories and a huge moat, so I actually was hoping the market would keep it’s downward spiral, then bobber back up sometime in the future.
You can’t go wrong with DCA MR!
interesting! and at a huge discount to boot. I’ll read up on it a bit, perhaps it may be a fund that I play with in the future too.
I freaking love this strategy. I haven’t been able to formulate how I am going to work into these dips.
I am not sure I have the cash flow to do both buy and hold build up this sort of “investment emergency fund” but I am damn well going to try
I find if I know a stock very well, I get a feel for the movements that it makes around quarterly earnings and seasons in general.
My problems in the past were that I would pull the trigger too quickly during the downward spiral and get bummed because it would keep on going down but I wouldn’t have any more money to buy in. It’s fun, and I’m still learning. I usually wait at least 1 week before making another purchase. If the stock goes up a lot, then I sell the first purchase win-win…
Only in my Roth though. And only a stock that I totally believe in!
Good strategy. Keeping your powder dry to score on some bargains makes sense.
It’s definitely a good trick to take some of the gloom out of downward spirals. While it’s a small amount of money, it’s still fun!
I have some liquidity because I’m saving for a 4 plex. Once that’s done, then I’ll be able to buy more stocks. I have a bit more than I need for down payment so I should be able to pick up some extra shares.