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Two pieces of advice I read most often in regards to stock market investments are:

  1. Stay invested in the market -- time in market is more valuable than timing the market.
  2. Buy the dip -- if the market falls, invest more money instead of cashing out.

This might be a stupid question, but how can you accomplish both at the same time. How can I buy the dip, if all my savings is already invested in the market?

Does this mean I should keep some portion of my savings in cash that I gradually put into market as and when the market falls. But then that goes against the first principle, since it is kind of trying to time the market and losing out on any market growth while my money is out.

  • Everyone times the market in one form or another: Looking for undervalued stocks, selling overvalued stocks, portfolio reallocation. I've moved a large chunk of money from total long exposure to more limited risk exposure three times. The end of 2007 was my favorite one, getting out of the way of a 50% down market drop while cashing in on the 15 month drop. Maybe one can't "time" the market but you can surely cover your assets and not lose your shirt. – Bob Baerker Jan 24 at 13:05
  • You'll notice that both pieces of advice are equivalent to "only buy, never sell". One wonders two things: first, if everyone followed that advice, who would we be buying from? And second: who benefits from you and others following that advice? – Eric Lippert Jan 24 at 18:08
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    I'm 100% in index funds, but that doesn't mean I don't have emergency funds or other ways I could easily liquidate to move more into the market at once. I did just that late Dec to max out IRA for the year. Others might reallocate from more conservative holdings. Whatever you do should be backed up by your personal financial mission statement. – topshot Jan 24 at 21:13
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You can achieve both outcomes by having a portion of your portfolio allocated to fixed income, this will lower the volatility of your total holdings without sacrificing too much expected return. When the inevitable dip occurs you can/should rebalance your portfolio to it's target weightings by exchanging fixed income for stocks on sale.

2

The two aren't mutually exclusive. You should have a fixed amount budgeted to go into your investment on regular basis (item 1). Buy the Dip is like saying "this is on sale, can I squeeze my budget elsewhere to get these at a good deal?". It'll require sacrificing elsewhere.

1

While it’s not standard advice. One way to achieved the dual objective when 100% invested in stocks is to use leverage.

  • By "Leverage", it sounds like use debt. Interest paid offsets interest earned and also adds risk to the equation. I call that bad advice. – Adam Klump Jan 25 at 6:07
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How can I buy the dip, if all my savings is already invested in the market?

By having a job? People do not "invest all their money" in a magical point in time and then not earn more money, until they are retired. They keep adding.

  • Following principle 1, I am assuming the savings are regularly invested back in the market. Basically, there isn't a considerable chunk of cash left uninvested that could be specifically used during a dip. – shreyj Jan 24 at 7:07

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