Over the past three years, “Buy the Dip” became one of the biggest rallying cries among young investors. The idea is simple: As stock markets and cryptocurrencies drop in price, buying them on the downswing could result in major future gains.
Trends show that despite cautions that financial markets may not have hit the bottom yet, “buying the dip” is still popular. According to recent analysis by TD Ameritrade, investors are continuing to buy shares of retail favorites despite losing value since the beginning of 2022. In El Salvador, the country which adopted Bitcoin as an official currency in 2021, the country’s investment in the cryptocurrency has lost 35% of its value — but that isn’t stopping leaders from purchasing more in the dip.
Should investors consider risking their assets in a market that is still highly volatile at best? Or is holding onto cash a smarter play? The answer lies between research, knowledge of the financial markets and the context of your own personal finances.
When it comes to consumer goods and services, a price index is a weighted average of the average price of products in a category. Many retail investors perceive a brand is a good investment because of its ability to withstand price index fluctuations. For example: Apple is often seen as a good investment because their products seem to be everywhere in our daily lives, and users will buy products without comparing specifications because of their high quality.
Unfortunately, when markets fall, everything tends to fall together. Even though Apple products continue to sell, the greater downturn in technology has caused the company to drop in value throughout 2022. Even though there is still quality in the brand, the price may continue to go down because of bigger economic trends.
Before getting into any security, it’s important for retail investors to understand what types of assets they want to buy and hold over a long period of time.
To get inspired on which brands might make good opportunities, consumers should start by looking at the brands they use every day. By researching and investing in the companies people know and use on a daily basis, it’s possible to find opportunities to invest in the dip.
Although the original Bitcoin whitepaper was published in 2009, cryptocurrency only became a mainstream investment opportunity over the past five years. Surveys suggest 13% of adults have engaged with cryptocurrency, but mostly as a speculative asset class.
Bitcoin gets plenty of media attention, but investments in the digital token only represent 2% of the world’s global wealth. While some investors would argue that now is the time to buy the Bitcoin dip, the truth is there are other assets — such as stocks and real estate — which offer a higher overall yield than the world’s biggest cryptocurrency, which has no yield.
Simply put: Small cap markets (like cryptocurrency) in a downward trend does not necessarily represent a good deal for customers. Smart investors shouldn’t place half of their wealth in cryptocurrency looking for a quick payday, but instead should consider diversifying a small portion of their money across the space. Despite the stories of the lucky few, there are no reliable shortcuts.
Finally, those who don’t understand how cryptocurrency works should be very thoughtful about getting into it. It’s easy to get excited about momentum gains (or losses) from short-term holdings, but it’s critical to understand how an asset works to hold onto it over the long haul.
Now more than ever, media channels are broadcasting the idea of “buy the dip” as a great opportunity to get into investment opportunities and ride major gains. The problem with that advice is that nobody quite knows how deep the dip runs. Since the beginning of the year, the NASDAQ alone has sold off more assets than the drop at the start of the pandemic. Moreover, the number of mentions about a “bear market” across media is at an all-time high, creating a lot of mixed messages for retail investors.
Now is the time for investors to turn off their televisions, sign out of Twitter, and start by rethinking about their scale of economy. Consider the following:
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