# When to NOT Buy The Dip

## Метаданные

- **Канал:** Next Level Life
- **YouTube:** https://www.youtube.com/watch?v=DgxJxlnP8m4
- **Дата:** 18.05.2026
- **Длительность:** 11:03
- **Просмотры:** 1,548
- **Источник:** https://ekstraktznaniy.ru/video/53171

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When You Should NOT Buy the Dip:
Most people have heard the advice: “Just buy the dip.” When the market drops we’re supposed to get excited, and if we have cash available or are able to increase our ongoing contributions, we’re supposed to take advantage. After all, prices are on sale! And to be fair, oftentimes that advice works really well (I’ve advocated for it many times over the years). But it’s not always the best idea.

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## Транскрипт

### Segment 1 (00:00 - 05:00) []

Most people have heard the advice, just buy the dip. When the markets drop, we're supposed to get excited. And if we have cash available or are able to increase our ongoing contributions, we're supposed to take advantage. After all, the investments are on sale. And to be fair, often times that advice works really well. I've advocated for it many times over the years, but it's not always the best idea. Buy the dip can actually be dangerous advice if taken as gospel, because not every dip is the same. Not every investor is in the same position. And in the wrong circumstances, buying the dip can actually make your financial situation worse, not better. So, in this video, we're going to break down when buying the dip actually works. And perhaps more importantly, eight situations where buying the dip may not be the best move. But before we get going, be sure to like this video if you haven't already, as it really does help out the channel a lot. And subscribe with notifications on for more money-related videos like this one every single week. And if you want to further support this channel, you can check out some of the links I've left in the description below, which includes a link to my Patreon page. This is the best way to show your support for this channel. And in addition to that, you can also get early access to new videos and exclusive content such as spreadsheets based off the ideas we discuss in these videos. The spreadsheets will allow you to play with your own numbers and see how big of a difference some of the ideas we discuss can make for your own personal financial situation. Before we get into situations where buying the dip may not be the best move, it's important to understand why the advice has become so commonplace, because buying the dip can be a very effective strategy under the right conditions. Typically, it works best when you're investing in broad diversified assets such as market index funds, you have a long time horizon, your financial foundation is solid and you're not taking on more risk than you're comfortable with, and the dip you're buying is driven more by a short-term fear or overexuberance than long-term or systemic damage. Just to put some numbers to it. Let's say that John and Jane were both investing in an index fund for 10 years. They both have $10,000 to start with and are investing a further $3,000 per year. However, in years after the index fund experiences a negative return of any amount, Jane increases her investments to $5,000. Here's how that hypothetical could play out. Both John and Jane made good financial progress and earned average annualized returns of about 10% per year over this decade. However, Jane came out ahead of John because she bought the dip. The extra $6,000 that she ended up contributing compared to John over these 10 years netted her an additional $14,000 in her ending net worth compared to John. This is the version of buy the dip that people should be talking about. And to be fair, usually it is, but not always. The first situation where you may not want to buy the dip is when you lack a solid financial foundation. If you don't have an emergency fund in place or you're carrying a lot of high-interest debt like credit cards or your income isn't very stable, the risk-reward trade-off might not be worth making. This is because if you buy the dip and then, say, lose your job or fall ill or get hit with a large unexpected expense before the recovery, if you don't have an emergency fund in place, you could be forcing yourself to lock in those losses. That's arguably the worst-case version of buy the dip simply because it is avoidable. Build an emergency fund, get rid of that high-interest debt, and then take advantage of those temporary market declines. The second situation where you may not want to buy the dip is if you're uncomfortable with the volatility that can and often does come with investments during those more turbulent periods of the market cycle. After all, market dips don't come with a you're all clear, we've reached the bottom sign. If they did, then predicting market bottoms and tops, for that matter, would not be so notoriously difficult. Fund managers would be able to beat index funds with regularity for decades on end. So, if these market swings could cause you to make decisions that you'll later regret, it's worth considering whether buying the dip is the right move. Another related situation is if buying the dip would cause you to take on more risk than you're comfortable with based on your investing strategy without receiving a big enough reward to make it worthwhile. I don't mean that you may shoot yourself in the foot by buying high and selling low. I'm referring to tilting your allocation to something that isn't well suited for the goals you're currently pursuing. For instance, if you have a portfolio that follows the allocation of the permanent portfolio, which is a relatively stable portfolio allocation because you're currently very near a large purchase and don't want to have a ton of your money in highly swingy assets. Then selling a bunch of your more stable assets in order to buy the dip in a volatile asset that has recently declined could set you up for some problems when the time comes to make that purchase, especially if the dip you just experienced was not in fact the bottom of the market. A third situation where buying the dip may not be the best move is if you're doing it simply to try and time the market. As we just went over, trying to time the market at the bottom or top is notoriously difficult. Even the professionals who do this for a living day in and day out struggle to beat the markets after fees for more than a few years at a time. Just to put some

### Segment 2 (05:00 - 10:00) [5:00]

numbers to it, in the latest active passive barometer report released by Morningstar for 2025, active US large cap blended funds, which are similar to the S& P 500, have managed to beat their passive benchmarks after fees about 32% of the time over 1-year periods, 24% three and five-year periods, 8% of the time over 10-year periods, and just 6% of the time over 20-year periods. In some cases, the success rates are even worse. I mean, just look at that large cap growth category. That is rough. Even the category with the highest long-term success rate, diversified emerging markets, has a roughly 32% chance to outperform over 20-year periods. So, suffice to say, odds are not in your favor when trying to time the market. A fourth situation where buying the dip may not be the best idea is when the dip reflects real, long-term problems. These problems can come in the form of fundamental problems with the company, such as losing their competitive advantages, or structural problems, such as industry-wide headwinds that affect every company. Think things like technological disruption, regulatory changes, or permanent demand shifts from the consumer base. This situation can also include the popping of some financial bubbles. A fifth situation where buying the dip may not be the best move is if you need the money soon for some other purpose. Basically, it may not be the best move to buy the dip if doing so would mean ignoring sequence of return risk. The S& P 500 has historically had strong returns over the long haul, but in any given year, or heck, even any given handful of years, those returns can deviate by quite a lot from the long-term average, and not always for the better. Over the long run, the S& P 500 has had average annualized returns of about 10% per year. But, take a look at the 2000s, and the picture looks quite different. From January of 2000 to January 2010, a $10,000 investment in the S& P 500 would have shrunk to about 7,800 bucks. That's an average annualized return of about -2. 5% per year over the course of an entire decade. Sure, it would have been better if you reinvested dividends, but it still would have been underwater. Now, that may not happen often in the grand scheme of things, but it does happen, and should be taken into account when you need the money soon. A similar thing could be said if the economy is experiencing systemic risks, rising interest rates, and just general fiscal tightening, as those can sometimes be tougher for markets to quickly bounce back from. That doesn't mean that they never do bounce back quickly, but it can be tougher. A sixth situation where buying the dip may not be the best move is if you are highly leveraged. The reason being that leverage makes both gains and losses more extreme. Just to put some numbers to it, if you had $10,000 invested in an index fund and the fund earns 5% in your first year of investing, 10% in year two, loses 20% in year three, holds steady in year four, and then gains another 10% in your fifth year, you would have a net worth of approximately $10,200. However, if you had held that same exact investment in a leveraged fund that promised three times the returns of the index that you were tracking, your net worth would actually be approximately $7,800 bucks after that five-year period, at least in this admittedly oversimplified example. Most leverage funds promise those multiplied returns on a daily basis, not a yearly basis, so the actual numbers would differ a bit, but the trend would be the same. As you can imagine, if you lost your job in that third year when the markets cratered, you could be a good amount underwater, especially in a leveraged investment. And when it comes to leveraged investing, you don't even have to lose your job for it to be a problem, as you could receive a margin call forcing you to sell when the investment is low to pay that expense. And it's difficult to even recommend that you just wait to buy that leverage fund until that third year when it drops, because market peaks and troughs are notoriously difficult to predict in the moment. A seventh situation where buying the dip may not be the best move is when you're ignoring the opportunity costs of buying the dip. Yes, buying the dip can lead to strong gains when the markets bounce back, but it's not the only option for achieving strong gains. If you're one who's more entrepreneurially minded, having some money on the sidelines can be valuable so that you can jump on business opportunities as you identify them. If you're selling investments that are held in a taxable account, it's worth comparing the costs associated with selling those investments in order to buy the dip. If you fall into one of these buckets, it doesn't mean that buying the dip isn't worth it. It's just that you want to make sure you're considering the opportunity costs in whatever form they take before clicking buy. And finally, an eighth situation where buying the dip may not be the best move is when you're falling prey to psychological biases. Perhaps the most notable example here would be anchoring bias. Basically, anchoring bias is our brain's tendency to rely too heavily on the first piece of information received about something, such as an investment's price. Just because a stock was trading at $100 a share a year ago and is currently trading at $70 a share, it doesn't necessarily mean that the stock is on sale. It might be, but it's also possible that something else is to blame

### Segment 3 (10:00 - 11:00) [10:00]

for the recent dip. As discussed earlier, maybe the company has lost some of its competitive advantages or maybe the industry is facing headwinds. As a result, the true value of the stock is actually closer to $60 a share and the market just hasn't fully caught up to that yet. Herd mentality, or the tendency to follow the crowd or dominant narrative, is another good example of a bias we can fall for. Buying the dip itself is a pretty dominant narrative in modern investing because when done properly, it usually works pretty darn well. But as we've discussed today, there are situations where following this narrative blindly could end up setting you back financially. So, those are some situations where buying the dip may not be the best move. Are there any other situations you can think of where you wouldn't want to buy the dip? Let me know in the comments section below. But that'll do it for me today. Once again, if you enjoyed this video, be sure to smash that like button if you haven't already, subscribe and hit that bell next to my name so you'll be notified of all my future uploads. If you have a friend that would be interested in this kind of content, be sure to share it with them. Let's really get this information out there and start our own financial revolution.