Buy on dips or Lumpsum investment

 As investors in Stocks or Mutual funds, we will come across many situations where the market will give us good opportunities to invest more for better risk-adjusted returns.

In this blog, I will share my experience on how to use our excess money to invest at the right time and in the right place.

Buy the Dip like a Pro!

From the title, it’s clear I am going to talk about buying the dips in the stock market or whenever the stock market corrects, we should be prepared for such a situation to take it as an advantage as long-term investors.

First, we should not use our emergency fund to buy the dip as we have kept it for a reason, and we should be disciplined on this and not use it until it is actually required. Consider it as an insurance policy for worst cases. 

Next is we cannot invest in any Stock or Mutual Fund Scheme,

if you are planning to invest in stocks, the stock should be fundamentally great and it should be Value or Growth stock, or value plus growth is the best but difficult to find. We can see the intrinsic value of the stock to get to know if it’s not overvalued and look for the future sector stocks which are expected to groww. In my view, Metaverse is the next big thing coming along with Green Energy and Electric Vehicles.

Now if you are in Mutual Funds, you should only select good-performing funds only. Try to invest lumpsum only in Large-cap, Multi cap, and my favorite Flexi cap funds. Avoid small-cap funds if your risk appetite is low.

With this now let’s come to, how we can BUY ON DIP or Invest LUMPSUM!!

The Best TIME!!

Above is the example graph, where I have used a STAR to indicate the best time to use the dip or market correction. Investing at this point will give us the maximum return. But is it easy to predict what is the bottom?

It is very difficult to predict this point even for the experts who are having vast experience in this field.

So as a retail investor, frankly I will say forget about predicting the bottom as it’s very difficult or almost impossible for even big investors to predict this. Even if they can, why will they share publicly?

So I believe the below strategy will work for most of us and better it will be if we are monitoring the market's news during the lumpsum investment or while buying on dips.

The STRATEGY!

We are referring to the above figure and let’s assume we have 100 Rs. to invest.

        1. The first 10 Rs we invest when the Market shows some dip, the percentage for stock and Mutual fund Schemes will differ. So Based on the news try to expect some percentage of correction. (Assume here 5% is corrected and expected is 20–25% correction)

        2. Invest the next 20 Rs after the next dip of 10% and then 20 Rs more on the next dip of 10%. (Here Market or Stock is corrected to 25%)

        3. By now we have invested 50 Rs out of the 100 Rs we had, and now when seeing an upward movement of 10–15% invest more 25 Rs, From this point market is likely to go up. But in case it is corrected further we are still having more 25 Rs with us to be used as we know we cannot predict the market. So never invest your all money any time

For this strategy to work perfectly, you can see we have to look for market news and have to put in some effort here.

But I know everyone cannot do this, For them if we are in SIP and betting on long-term returns, we should keep our SIP going and for investment in stocks also we can SIP a small amount every month or at the desired interval period. (Do check the Small case in this reference)

I hope this will help everyone to use the dip in the market better from now on and take maximum advantage of it.

Happy Investing!!🙂

👉 Research well before you start investing. I have created this blog based on my experience for learning purpose.

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