Do you buy the dip?

Right now, investing is uncomfortable, but it is from discomfort we find opportunity. Opportunities do not come along when the outlook is clear and positive. They come when you feel like sticking your head in the sand. 

Buying when markets are falling is never straight forward as it goes against most of our own impulses.  

History shows us choosing to buy when the outlook is bleak can be incredibly beneficial to our long-term wealth. 

Here are three tips for those who want to turn pessimism into opportunity: 

Invest knowing markets can (and probably will) continue to fall 

There’s a saying in markets, no one rings a bell at the top and no one rings a bell at the bottom. We’ll never know when markets will peak or bottom. Invest expecting further falls and knowing you won’t be able to time it perfectly. To do this, keep cash handy and invest gradually over the next few weeks and months and be satisfied with your average entry point. This process is known as dollar cost averaging.  

Maintain your diversification in line with your investment timeframe 

Diversification is core to our approach here at InvestSMART and we diversify our portfolios in line with timeframes. The longer you have to invest, the higher proportion of growth assets (think Australian and international shares). It’s important to always maintain adequate diversification, don’t get too excited and over-expose yourself to one asset class. Think of your timeframe and diversify adequately. To help you, check out our diversified portfolios here and take note of the timeframe and asset breakdowns.   

To achieve our diversification we use asset class specific exchange traded funds (ETFs), so not only are we diversified across sectors but also within sectors and not leaving ourselves exposed to the fortunes of just one or two companies.

Invest for the long-term 

Wealth building doesn’t happen overnight. You should expect short-term volatility in markets. Which is why your focus should be on your long-term goals and invest during these turbulent times knowing the power of compounding takes time. As you wait for prices to recover your portfolio will be generating dividends and you can continue to focus on gradually adding to your portfolio. Over time this will snowball, and you will see the power of compounding taking effect. 

InvestSMART operates diversified portfolios all designed around timeframes. You can add to your portfolios at any time, and they also include the option for automatic contributions helping to compound your dividends. Click here to find out more or comment on the article, we’re happy to answer any questions.