I’ve been aggressively shopping for the dip since March 2020, after I wrote How To Predict A Inventory Market Backside Like Nostradamus. My daughter was born 4 months earlier, and one thing inside me clicked, pushing me to speculate aggressively for her future in an more and more troublesome world.
Since then, I’ve continued to purchase nearly each significant dip (2%+) as a result of I stay bullish on America, synthetic intelligence, shoppers’ insatiable urge for food to spend as an alternative of save, and financial insurance policies designed to maintain voters joyful so politicians can keep in energy.
On the similar time, expertise has taught me an vital lesson: you may be proper long run and nonetheless be incorrect within the brief time period in case you purchase the dip too typically and too early.
When Shopping for the Dip Turns into a Senseless Behavior
Whereas updating an older put up from March 2022 about how your retirement withdrawal charge will decline throughout bear markets, I got here throughout a graphic that jumped out at me. The picture reveals how regularly I used to be shopping for the dip in the course of the first quarter of that 12 months. It was fascinating and somewhat humbling.
2021 had been an outstanding 12 months +26%, after a +16% 2020 for the S&P 500. After two straight years of wholesome good points, it felt unnatural for shares to begin correcting in 2022. It was as if buyers had collectively forgotten that shares typically go down.
Because the market declined in early 2022, I started shopping for VTI repeatedly. February was notably robust, each for the market and for my investing psyche. I saved shopping for, and the market saved falling. Trying again on the chart, I counted at the very least 14 separate dip purchases in simply that one month.
The joy of shopping for shares at two to 5 p.c reductions rapidly pale when the S&P 500 went on to fall one other 20+ p.c from peak-to-trough! Shopping for the dip felt good emotionally, as if I used to be doing one thing about shedding cash, however the timing was removed from supreme.
Finally, I ought to have unfold out my dip shopping for in 2022 over an extended time period. That is vital context as a result of as we begin 2026, we’ve had three consecutive years of double digit good points within the S&P 500. And the identical factor may occur once more with a lot nervousness round valuations and geopolitical uncertainty.
Don’t Purchase Too Aggressively Too Quickly
I’m pretty assured there shall be one other 10 p.c plus correction in 2026. When that point comes, you need to have sufficient money to reap the benefits of it. The issue is that significant corrections typically take months to totally play out. When you deploy an excessive amount of capital early, it’s possible you’ll end up watching costs fall additional with out sufficient dry powder left.
In early 2022 alone, I purchased the dip greater than 35 instances within the first quarter. Regardless of that, the market continued to say no. The lesson was clear: preliminary pullbacks are sometimes only the start when valuations are elevated or when coverage uncertainty is rising.
As soon as markets resolve valuations are too costly or that company revenue expectations must be reset, it will possibly take a number of quarters of earnings reviews for sentiment to shift.
Administration groups want time to regulate steerage and techniques. That course of doesn’t occur in a single day, which is why small three to 5 p.c pullbacks shouldn’t be handled as once-in-a-cycle alternatives.
How Lengthy Corrections and Bear Markets Often Final
Traditionally, a typical 10 p.c correction lasts about three to 4 months from peak to trough. Some resolve quicker, whereas others stretch out longer relying on financial circumstances and coverage responses.
Bear markets, outlined as declines of 20 p.c or extra, are extra extended. On common, bear markets final roughly 9 to 14 months, though the vary is broad. Some are brief and violent, whereas others grind decrease over a number of quarters.
This issues as a result of shopping for too aggressively early in a downturn can go away buyers underprepared for later, extra engaging alternatives.
A easy method is to take your projected money circulation and current money pile and divide it over three to 14 months to ascertain a baseline month-to-month funding quantity. When you choose to speculate weekly, you may divide the whole by twelve months, or roughly fifty two weeks, to reach at a gradual weekly contribution.
Considering in quarters as an alternative of days helps. Quarterly earnings are when actual adjustments in sentiment, steerage, and technique happen. In between, you might be principally reacting to noise.
And sure, that is technically market timing, which works in opposition to the standard recommendation of shopping for and holding for the long run. However the fact is, each funding resolution entails some type of timing. Don’t idiot your self into pondering you aren’t dollar-cost averaging or timing the market, since you are.
Valuations Matter Extra Than Most Traders Admit
From the start of 2023 to the tip of 2025, the market rose near 80 p.c. After a run like that, a significant correction shouldn’t be shocking.
Immediately, the S&P 500 remains to be buying and selling round 22.5 instances ahead earnings. Traditionally, when the ahead value to earnings ratio has exceeded 23 instances (or 30 instances trailing), the next 10 12 months annualized returns have ranged from roughly minus 2 p.c to plus 2 p.c per 12 months. That may be a far cry from the double digit returns many buyers have come to anticipate.
If valuations had been to revert towards a long run common nearer to 18 instances earnings, a 20 p.c or higher correction wouldn’t be unreasonable. This is the reason valuation context issues when deciding how aggressively to purchase dips.
The excellent news is that many people had been pondering this at first of 2025, when the ahead P/E was additionally round 22X. But we nonetheless loved a double digit return as S&P 500 earnings grew by about 16.5 p.c earlier than dividends. The unhealthy information is that the chances of one other double digit return going ahead are decrease.
Make Certain You Have Ongoing Money
Trying forward, 2026 is a midterm election 12 months. Traditionally, midterm years are likely to expertise larger volatility resulting from coverage uncertainty. Now there’s heightened geopolitical uncertainty as effectively.
Given this backdrop, buyers ought to keep at the very least 5% of their portfolio in money, and probably nearer to 10%. With money yields nonetheless north of 4 p.c, the chance price of holding money is comparatively low, particularly in comparison with the flexibleness it gives throughout market corrections.
Shopping for the dip has labored extremely effectively over the previous decade, particularly in periods of aggressive financial assist and speedy technological progress. I stay optimistic about the long run trajectory of the U.S. economic system and fairness markets. Nonetheless, optimism doesn’t eradicate the necessity for self-discipline when valuations are stretched and markets have delivered years of outsized good points.
The secret’s to not cease shopping for the dip altogether, however to tempo your self. Corrections and bear markets are likely to unfold over months, not days. By pondering in quarters, respecting valuations, and maintaining sufficient money available, you give your self flexibility. Flexibility is what lets you keep calm and opportunistic.
Construct wealth steadily with out operating out of ammunition too early.
Reader Questions
- How a lot money do you at the moment maintain in your funding portfolio, and has that share modified as valuations have risen?
- Do you purchase each dip robotically, or do you scale in based mostly on valuation, time, or market sentiment?
- How do you consider shopping for dips to your youngsters’s funding accounts throughout lengthy bull markets?
Diversify Your Wealth Past Shares and Bonds
One solution to keep away from shopping for the dip too early or too typically is to broaden the place you make investments. Shares and bonds are foundational, however when valuations are excessive and volatility rises, relying solely on equities could make timing errors expensive.
That’s why I put money into actual property, which gives revenue potential and diversification with out forcing you to react to each market pullback. Fundrise permits passive funding in residential and industrial properties throughout the Sunbelt, the place valuations are typically decrease and rental yields larger.
Fundrise additionally gives publicity to personal AI corporations like OpenAI, Anthropic, Anduril, and Databricks, serving to stability a portfolio with out chasing short-term strikes.
I’ve personally invested over $500,000 with Fundrise. With a $10 minimal, it’s a simple solution to diversify whereas staying disciplined throughout risky markets. Fundrise is a long-time sponsor as our funding philosophies are aligned.
Be a part of over 60,000 readers and subscribe to my free Monetary Samurai publication to remain knowledgeable and disciplined. Since 2009, I’ve shared insights to assist readers develop wealth, achieve freedom, and make smarter long-term monetary choices.
Background: I’ve been investing in equities since 1996, together with 13 years within the business at Goldman Sachs and Credit score Suisse. Immediately, I handle an eight-figure funding portfolio that helps present for my household. I maintain a BA from William & Mary and an MBA from Berkeley. In 2009, I helped kickstart the modern-day FIRE motion with the launch of this website.
