February 27, 2025
By Katie Momo
“Buy the dip!” It’s advice we’ve all heard - wait for the market to drop, then jump in and snag a bargain.
Sounds smart, right? But here’s the reality: trying to buy the dip often costs you more in the long run.
Listennnn, I’m a recovering dip-buyer. I love getting a sale, and apparently it’s no different whether I’m buying stocks or shoes - girl loves a deal!
But I’ve since (painfully) learned that this strategy usually doesn’t pan out.
Truth: If you’re a long-term index investor, buying the dip is like chasing a mirage - by the time you get there, it’s moved further away.
But if you’re investing in individual stocks? Well, buckle up, because it’s a completely different story.
When people say “buy the dip,” the idea is simple: wait for prices to drop so you can buy cheaper.
The problem? Dips are unpredictable - and by the time they happen, prices are often higher than when you first considered investing.
Let’s use an example with a Passiv user favourite, Vanguard’s S&P 500 ETF (VFV):
Here’s the thing: Adam’s “dip” price of $94.80 was still higher than $92.50, where he could have invested on April 1.
By waiting, he missed out on two weeks of growth and ended up paying more for the same shares.
This scenario plays out all the time. And I’ve lived it.
Markets tend to rise faster than they dip. Even when a dip occurs, it often doesn’t drop below your original entry point. Waiting for the “perfect” price usually leads to regret - and lower returns.
The numbers back it up! Historical data shows that waiting for dips is a losing game:
The biggest issue with buying the dip is that “lower” might never happen, because short-term drops are often outweighed by gains.
Like if Adam had invested his $10,000 in VFV at $92.50, he would’ve gotten about 108 shares.
By waiting and buying at $94.80, he only got 105 shares.
Doesn’t seem like much now, but continuing to play “the dip game” for decades will lose him a fair amount.
The “All Time” chart for VFV from Yahoo Finance
If you’re investing in individual stocks, the rules are very different.
Stocks often drop for specific reasons, and understanding why is crucial before investing.
There are a squillion reasons a stock might drop. Here’s just a few…
I’m dating myself here, but let’s talk about a Canadian legend: Nortel. (Remember that??)
Nortel was once a tech giant, a darling in the telecom industry.
In the 2000s, its stock plummeted due to accounting scandals, over-expansion, and unsustainable growth expectations.
A YouTube commenter shared, “My dad bought Nortel stock during ‘a dip.’ Turned out it was the high.”
Nortel’s stock chart, as shown on Seeking Alpha
Because Nortel’s stock didn’t just dip - it spiraled into oblivion. What looked like a bargain was actually a sinking ship.
This is why investing in individual stocks without understanding their fundamentals can be a recipe for disaster.
As passive investors we don’t want to deal with this - and thankfully we don’t have to.
Here’s to ETFs that spread your money across tons of companies! 🎉
As with most things index investing, the easiest way is often the best.
Here are the 2 strategies that have performed best long-term:
If you have a lump sum, invest it all at once. Studies show lump-sum investing outperforms market timing about two-thirds of the time.
With VFV or any broad-market ETF, the longer you’re invested, the more time your money has to grow.
If you’re more comfortable investing gradually, DCA is a great strategy.
By investing regularly (like monthly), you buy shares during both highs and lows, averaging out your cost over time. This removes the pressure of trying to predict market dips.
Instead of waiting for dips, think of them as normal parts of market behaviour. If the market drops after you’ve invested, don’t panic.
Remember: you’re investing for the long haul. Over time, the market’s growth will make short-term dips look like small blips.
“Buy the dip” sounds smart, but it’s usually an illusion.
By the time a dip happens, the market has often climbed higher than when you first considered investing. Waiting means missed opportunities and lower returns.
I mean if I happen to have extra cash when the market dips, I’ll buy. It’s just that I won’t strategically wait for a dip.
The best strategy for most investors? Stick with broad-market ETFs, invest consistently - whether through lump-sum investing or DCA - and let time in the market do the heavy lifting. You’ll thank yourself later! 💰
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