I’ve been aggressively shopping for the dip since March 2020, once I wrote How To Predict A Stock Market Bottom Like Nostradamus. My daughter was born 4 months earlier, and one thing inside me clicked, pushing me to take a position aggressively for her future in an more and more tough world.
Since then, I’ve continued to purchase nearly each significant dip (2%+) as a result of I stay bullish on America, artificial intelligence, shoppers’ insatiable urge for food to spend as an alternative of save, and financial insurance policies designed to maintain voters comfortable so politicians can keep in energy.
On the similar time, expertise has taught me an essential lesson: you could be proper long run and nonetheless be flawed within the quick time period if you happen to purchase the dip too usually 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 rate will decline during bear markets, I got here throughout a graphic that jumped out at me. The picture exhibits how often I used to be shopping for the dip throughout the first quarter of that yr. It was fascinating and a bit humbling.
2021 had been an outstanding yr +26%, after a +16% 2020 for the S&P 500. After two straight years of wholesome good points, it felt unnatural for shares to start out 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. Wanting again on the chart, I counted at the very least 14 separate dip purchases in simply that one month.
The thrill 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! Buying the dip felt good emotionally, as if I used to be doing one thing about shedding cash, however the timing was removed from best.
Finally, I ought to have unfold out my dip shopping for in 2022 over an extended time frame. That is essential 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 will probably be one other 10 p.c plus correction in 2026. When that point comes, you wish to have sufficient money to benefit from it. The issue is that significant corrections usually take months to completely play out. When you deploy an excessive amount of capital early, you might 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 could actually take a number of quarters of earnings reviews for sentiment to shift.
Administration groups want time to regulate steerage and methods. 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 situations 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 quick 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 depart buyers underprepared for later, extra enticing alternatives.
Pondering 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.
Valuations Matter Extra Than Most Traders Admit
We simply skilled three consecutive years of practically 20 p.c good points, making most inventory buyers considerably wealthier. Over a 3 yr span, the market rose near 80 p.c. After a run like that, a significant correction shouldn’t be stunning.
At the moment, the S&P 500 continues to be buying and selling round 22.5 instances ahead earnings. Traditionally, when the ahead worth to earnings ratio has exceeded 23 instances (or 30 instances trailing), the following 10 yr annualized returns have ranged from roughly minus 2 p.c to plus 2 p.c per yr. That could be a far cry from the double digit returns many buyers have come to count on.
If valuations have been to revert towards a long run common nearer to 18 instances earnings, a 20 p.c or better 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 have been pondering this firstly 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 dangerous information is that the chances of one other double digit return going ahead are decrease.
Make Certain You Have Ongoing Money
Wanting forward, 2026 is a midterm election yr. Traditionally, midterm years are likely to expertise larger volatility as a result of coverage uncertainty. Now there’s heightened geopolitical uncertainty as properly. Venezuela might not be the final nation to get attacked.
Given this backdrop, buyers ought to keep at the very least 5% of their portfolio in money, and presumably 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 pliability it gives throughout market corrections.
Shopping for the dip has labored extremely properly over the previous decade, particularly in periods of aggressive financial help and fast technological progress. I stay optimistic about the long run trajectory of the U.S. economic system and fairness markets. Nonetheless, optimism doesn’t remove the necessity for self-discipline when valuations are stretched and markets have delivered years of outsized good points.
The bottom line is 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 preserving sufficient money readily available, you give your self flexibility. Flexibility is what lets you keep calm and opportunistic.
Construct wealth steadily with out working out of ammunition too early.
Reader Questions
- How a lot money do you at present hold in your funding portfolio, and has that proportion modified as valuations have risen?
- Do you purchase each dip mechanically, or do you scale in primarily based 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 strategy to keep away from shopping for the dip too early or too usually 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 pricey.
That’s why I spend money on actual property, which gives earnings 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 non-public AI firms like OpenAI, Anthropic, Anduril, and Databricks, serving to steadiness a portfolio with out chasing short-term strikes.
I’ve personally invested over $500,000 with Fundrise. With a $10 minimal, it’s a straightforward strategy to diversify whereas staying disciplined throughout unstable markets. Fundrise is a long-time sponsor as our funding philosophies are aligned.
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