25 October 2023

    Buying in the dip, explained

    Investing basics tell us that long-term gains come from buying an asset, holding onto it for some time, and selling it down the track for more than you originally paid for it. Of course, there are other factors you'll need to consider (like your risk tolerance or the rate of inflation), but with all of that stripped away it's simple – buy low, sell high.

    Some assets, like the house you live in or a piece of art, can be very difficult to put an exact value on from one day to the next. Others, like shares or bonds, are valued and priced every day (if not more often). When you own shares or bonds, you can know the exact market price at any time and track the overall value of your portfolio.

    It can be exciting to watch the value of your investments go up in real time, but what about when the tables (or graphs) begin to turn? When the markets are down, watching the value of your investment appear to drop away in front of your eyes can feel pretty rough.

    When this happens, it's easy to have an emotional response of "sell it all, get out quick before I lose any more money" before trying to find something more stable – or at least something that's not losing value so quickly. But for some investors, a dip isn't a signal to sell; it's a time to buy.

    Time to buy?

    That's right – when the market is falling and everyone else is panicking, you could look at the other side of the equation. After all, you can't sell anything high if you don't buy it low to start with. It's a bit like shopping at Briscoes. When you finally admit that your non-stick pan is non-stick no longer, you can go out and grab something new and (hopefully) better any day of the week.

    But wouldn't you rather wait until there's a sale?

    Whether it's a frying pan or part of a quality company, the item you're buying stays the same – it's just more affordable.

    Though past performance isn't a reliable indicator of future performance, historical trends have shown that the markets bounce back after these slumps. Remember, the overall return on your investment is the difference between what you paid for it and what you sell it for. Smart investors even have a term for the consequences of selling shares in a dip instead of holding out for longer-term gains - it's called locking in your losses.

    While some investors might see a dip in the markets as a signal to panic, others see it as an opportunity. That $100 you were going to invest in your favourite company might be able to buy you 15 shares during a dip instead of 10 when markets are high.

    Unlike a trip to Briscoes, though, there is some risk in buying in the dip that needs to be considered. While markets overall have historically gone through highs and lows, individual companies and investments are always at risk of bankruptcy or sustained loss of value. It's not always easy to tell the difference between a company temporarily impacted by a dip in the market and a company on the decline during a larger market dip.

    Ready to dive in? Maybe dip your toes in first

    Almost anyone with some cash to spare and some time to burn can become an active investor, managing their own portfolio, reading the market, and focusing on opportunities to maximise long-term returns. There are plenty of DIY apps and platforms available online that offer an easy way to get started with a relatively small investment.

    However, it's just as true that almost anyone with time and cash to spare can lose a lot of each in the same process. You've probably heard of a friend or family member with an investment too good to fail that... well, did, and turned into spectacular losses.

    The difference can come down to information. Knowing the fundamentals of a business, who's leading it, its market growth, and potential future growth can all help when making decisions about your investments. Nowadays, you might also want to keep an eye on how sustainably the company is doing all of that as well.

    If you're the sort of person who enjoys that sort of constant detective work and has the time, then hands-on investing could be for you. Others, though, won't fall into that same camp. Day jobs, hobbies, and families to keep up with – that doesn't leave a lot of time for all that investment work.

    Phone a friend – we'll pick up

    When markets dip, skilled active management can make all the difference. The good news is that you can tap into the skills of our experienced team by investing in our Managed Funds.

    When you invest in a managed fund, your money is spread across a range of investments that come together to match the fund's risk and return goals. Behind the scenes, our team work hard to make sure the investment mix is right for now and in the long term.

    It's the best of both worlds – you get the benefits of constantly-updated research and market insights, as well as the buying and selling decisions based on them, without spending all your free time managing your investments.

    Our Managed Funds can be a great way to start your investing journey, or to complement any existing investments you have. With our eight different fund options, you can choose an investment strategy that suits you.

    Want to learn more?

    You can request an information pack to learn more about Fisher Funds Managed Funds, or if you'd prefer to speak with one of our team, request a call from one of our advisers – we're happy to help.