I even have been buying declines aggressively since March 2020 once I wrote. My daughter was born 4 months earlier, and something clicked inside me that pushed me to speculate aggressively in her future in an increasingly difficult world.
Since then, I’ve bought virtually every significant decline (2%+) because I remain optimistic about America, artificial intelligence, consumers’ insatiable appetite for spending reasonably than saving, and economic policies aimed toward keeping voters glad so politicians can stay in power.
At the identical time, the experience taught me a crucial lesson: You will be right in the long run and still be incorrect within the short term if you happen to buy too often and too early when prices decline.
When buying dips becomes a pointless habit
While updating an older post from March 2022 about how your retirement withdrawal rate will decline during bear markets, I got here across a graphic that caught my eye. The image shows how often I purchased during price declines in the primary quarter of this 12 months. It was fascinating and a bit of humbling.
2021 had been an exceptional 12 months at +26%, following a 16% gain in 2020 for the S&P 500. After two consecutive years of strong gains, it felt unnatural for stocks to start correcting in 2022. It was as if investors had collectively forgotten that stocks sometimes fall.
When the market was down in early 2022, I began buying VTI repeatedly. February was particularly tough, each for the market and my investing mentality. I kept buying and the market kept falling. Looking on the chart again, I counted not less than 14 individual dip purchases in that one month alone.
The excitement of shopping for stocks at a two to 5 percent discount quickly faded The S&P 500 fell one other 20 percent from peak to trough! Buying on a dip felt good emotionally, like I used to be doing something about losing money, however the timing was lower than ideal.
Ultimately, I must have spread my dip purchases in 2022 over an extended time period. This is significant context because as we enter 2026, we’ve seen three consecutive years of double-digit gains within the S&P 500. And the identical thing could occur again with a lot nervousness about valuations and geopolitical uncertainty.
Don’t buy too aggressively too soon
I’m quite confident that there can be one other correction of over 10 percent in 2026. When that point comes, you will need to have enough money to make the most. The problem is that it often takes months for meaningful fixes to be fully implemented. If you commit an excessive amount of capital early, prices may proceed to fall without enough dry powder left.
At the start of 2022 alone, I purchased from Dip greater than 35 times in the primary quarter. Nevertheless, the market continued to say no. The lesson was clear: Initial setbacks are sometimes just the start when valuations are high or political uncertainty increases.
Once the markets determine that valuations are too high or that firms’ earnings expectations should be adjusted, it may possibly take time several quarters of earnings reports to alter the mood.
Management teams need time to regulate policies and techniques. This process doesn’t occur overnight, which is why small setbacks of three to 5 percent shouldn’t be viewed as once-in-a-cycle opportunities.
How long corrections and bear markets typically last
Historical, A typical 10 percent correction takes about three to 4 months from peak to trough. Some resolve more quickly, while others take longer depending on economic conditions and political responses.
Bear markets, defined as declines of 20 percent or more, last more. Average, Bear markets last about 9 to 14 monthsalthough the range is large. Some are short and intense, while others get progressively deeper over several quarters.
This is significant because buying too aggressively firstly of a downturn can leave investors under-prepared for later, more attractive opportunities.
It helps to think in quarters as a substitute of days. There are real changes in sentiment, forecasts and strategy in the case of quarterly earnings. In between, you normally react to noise.
Valuations are more necessary than most investors admit
We just experienced three consecutive years of gains of nearly 20 percent, making most stock investors significantly richer. Over a three-year period, the market grew by almost 80 percent. After such a run, a meaningful correction should come as no surprise.
Today, the S&P 500 still trades at 22.5 times forward earnings. If the forward price-to-earnings ratio has historically exceeded 23 times (or 30 times trailing), The subsequent 10-year returns ranged from about minus 2 percent to plus 2 percent per 12 months. That’s a far cry from the double-digit returns that many investors now expect.
If valuations return to a long-term average of 18 times earnings, a correction of 20 percent or more wouldn’t be unreasonable. This is why valuation context is significant when determining how aggressively to purchase on declines.
The excellent news is that lots of us thought this firstly of 2025, when the forward P/E ratio was also around 22x. Still, we enjoyed a double-digit return as S&P 500 earnings before dividends rose about 16.5 percent. The bad news is that the likelihood of one other double-digit return in the long run is lower.
Make sure you’ve gotten a continuing supply of money
Looking ahead, 2026 is a midterm election 12 months. Historically, volatility tends to be higher in medium-term years attributable to political uncertainty. Now there may be also increased geopolitical uncertainty. Venezuela might not be the last country to be attacked.
With this in mind, investors should hold not less than 5% of their portfolio in money, perhaps closer to 10%. With money yields still above 4 percent, the chance cost of holding money is comparatively low, especially in comparison with the flexibleness it provides during market corrections.
Buying on dips has worked incredibly well over the past decade, particularly during times of aggressive monetary policy support and rapid technological advances. I remain optimistic in regards to the long-term development of the US economy and stock markets. However, optimism doesn’t eliminate the necessity for discipline when valuations are stretched and markets have enjoyed years of outsized gains.
The key isn’t to stop buying the underside entirely, but to do it tempo. Corrections and bear markets typically develop over months, not days. By considering in quarters, respecting valuations and keeping enough money available, you give yourself flexibility. Flexibility means that you can remain calm and opportunistic.
Build wealth steadily without running out of ammo too soon.
Reader questions
- How much money do you currently hold in your investment portfolio and has this percentage modified as valuations have increased?
- Do you robotically buy every dip or scale based on valuation, time or market sentiment?
- How do you’re feeling about buying dips to your kid’s investment accounts during long bull markets?
Diversify your assets beyond stocks and bonds
One approach to avoid buying too early or too often during market declines is to expand your investment options. Stocks and bonds are fundamental, but when valuations are high and volatility increases, timing errors can develop into costly when relying solely on stocks.
That’s why I put money into properties that supply income potential and diversification without having to react to each market downturn. Call for donations enables passive investment in residential and industrial properties throughout the Sunbelt, where valuations are likely to be lower and rental yields higher.
Fundrise also offers access to personal AI firms like OpenAI, Anthropic, Anduril and Databricks, helping to balance a portfolio without chasing short-term moves.
I personally have over $500,000 invested with Fundrise. With a minimum amount of $10, it’s a straightforward approach to diversify while remaining disciplined in volatile markets. Fundrise is a long-time sponsor because our investment philosophies align.
