Dollar Cost Average vs Buy The Dip (SURPRISING)

buy stocks every month or buy only when the stock price is down which investment strategy is better for you in the video we will see a study that analyzes which strategy is the best for long-term investments dollar cost average or buy the dip hi welcome to the holder investor if you want to receive more videos about investing please consider subscribing to this channel the dollar cost average or dca is when you buy stocks in regular intervals can be monthly weekly or in any other period the key point of this strategy is that the purchases occur regardless of the assets price in this way you don't need to guess if the stocks are going up or down you will buy periodically regardless if it is a bull or a bear market on the other hand the buy the dip strategy is when you only buy stocks when they are going down as the stock's price dips it may present an opportunity to pick up shares at a discount price the problem here is that you have to know how far the stock is going down you need to time the market to make this strategy work nick maggiore made a study comparing the dollar cost average and the buy the dip strategies for dollar cost average he considers an investor who invests 100 every month and for by the dip an investor who saves 100 each month and only buys when the market is in a dip for this scenario he considers that the investor would know exactly when the market is at the absolute bottom between any two all-time highs logically it seems like by the dip can't lose if you know when you're at the bottom you can always buy at the cheapest price relative to the all-time highs in that period however if you actually run this strategy you will see that buy the dip underperforms dca over 70 percent of the time from 1995 to 2018 the buy the dip strategy over performed the dollar cost average but as we can see in this image it was very close in this period the buy the dip wins because of the 2003 and 2009 dips by the dip will outperform dca when big dips happen earlier in the time period if we look over longer time frames historically buy the dip doesn't outperform most of the time this chart shows the amount of outperformance from buy the dip as compared to dollar cost average over every 40-year period over time the dollar cost average outperformed the buy-the-dip more than 70 of the time in this other image we can see a comparison from 1975 and 2014 and dca outperformed by the dip this happens because while you wait for the next dip the market is likely to keep rising and leave you behind jp morgan asset management's 2019 retirement guide shows the impact that pulling out of the market has on a portfolio from 1999 to 2018 if you missed the top 10 best days in the stock market your overall return was cut in half the return went from positive to negative by missing the 20 best days of the market over 20 years when trying to time the market you can end up missing these days waiting for a fall that will take a long time to happen and by doing so lose the potential return of some of these days what makes the buy the dip strategy even more problematic is that we have always assumed that you would know when you were at every bottom unless you have a crystal ball you will not be able to achieve that with a variation of by the dip where the strategy misses the bottom by two months dca over performed the buy the dip 97 of the time so i think that the best option is the dca as you don't have to time the market and the study shows that it will have a good chance of overperforming the buy the dip strategy if you like the video please hit the like button and subscribe bye

Channel: The holder investor

Views: 7,856

Keywords: dollar cost average, buy the dip, dca, dca vs buy the dip, dollar cost average vs buy the dip, Value investing, harlie Munger, Buffett, Investing in your 20s, Stock market, Invest, How to start investing, Warren Buffett, Benjamin Graham, how to make money, passive income, how to invest, personal finance, investing for beginners, investing strategies, The Holder Investor, Nick Maggiulli, dollar cost averaging, how to dollar cost average, dollar cost averaging explained

Id: zA44IGc5fLM

Length: 4min 2sec (242 seconds)

Published: Wed Feb 23 2022