14. Why You Shouldn’t Wait to Buy the Dip Flashcards
(15 cards)
What are the two investment strategies discussed?
Dollar-cost averaging (DCA) and Buy the Dip
DCA involves investing a fixed amount regularly, while Buy the Dip involves saving to invest only during market dips.
What is dollar-cost averaging (DCA)?
Investing a fixed amount regularly over time
In this case, $100 every month for 40 years.
How is a dip defined in the context of the Buy the Dip strategy?
Anytime the market is not at an all-time high
This includes significant declines in the market.
What percentage of the time does Buy the Dip underperform DCA?
More than 70% of the time
This underperformance occurs even with perfect timing knowledge.
What historical periods are mentioned for severe market declines?
The 1930s, 1970s, and 2000s
These periods had notable dips that could potentially favor the Buy the Dip strategy.
What is the significance of timing in the Buy the Dip strategy?
Perfect timing is required to outperform DCA
Missing the bottom by two months drastically reduces the chances of outperforming DCA.
What was the outcome for Buy the Dip from 1975 to 2014?
It performed poorly compared to DCA
This was due to missing the 1974 market bottom.
What strategy is recommended instead of waiting to buy the dip?
Just Keep Buying
This approach emphasizes investing as soon and as often as possible.
What is the chance of beating sitting in cash if you start investing in U.S. stocks?
98% chance over a decade
This statistic supports the effectiveness of continuous investment.
What was the average return on investment when buying U.S. stocks?
About 10.5%
This return is observed over a typical investment period.
What does the term ‘sequence of return risk’ refer to?
The impact of timing luck on investment outcomes
This concept will be explored further in the next chapter.
What was the growth of a $48,000 investment in DCA from 1922 to 1961?
Over $500,000
This figure reflects significant market performance over that time period.
What was the growth of the same investment during the worst period from 1942 to 1981?
$153,000
This stark contrast highlights the role of market conditions in investment success.
True or False: Buy the Dip always outperforms DCA.
False
Buy the Dip underperforms DCA more than 70% of the time.
Fill in the blank: The strategy recommended by the author is to _______.
[Just Keep Buying]
This emphasizes continuous investment rather than waiting for market dips.
