Bigger Pockets Money: Why “Just Keep Buying” is the Smartest, Simplest Way to Get Rich
During the recent bull market phrases like “stocks only go up” became the norm. After a year of stocks largely going down, such sentiments have disappeared. But it’s not entirely incorrect. The phrase was being used by traders to buy on a down day and flip for profits on the next market rally day.
Over a long enough timeframe, stocks tend to rise. So those who structure their investment plan accordingly can benefit from bear markets.
For those still investing in the markets, time is on your side. And over a 20-, 30-, or 40-year period, it makes sense to keep buying stocks. That strategy can work when stocks are up or down.
One such way to do this is with dollar cost averaging. Most investors with a 401k plan already do this. They set aside the same amount of payday after payday, and that capital is invested into a variety of funds.
That strategy has historically performed better than trying to buy the dip. The problem with that strategy is that investors never know the bottom. Even if investors could know the bottom, a dollar cost averaging strategy would still provide excellent returns over time.
That’s especially true for those who wait for a bear market every few years. Most bear markets may unwind a year or two of gains. But they don’t fully unwind the prior rally.