Money Rehab with Nicole Lapin - Why You Should Buy Stocks on Dips

Episode Date: December 21, 2021

When the stock market tanks, what should you do? Buy! We know this is counterintuitive: if the market is tanking, why would you want to double down and buy more? It feels like running into a burning house, right? Today, Nicole breaks it down. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. You may have seen that the Dow dropped 900 points after the first case of Omicron was

detected in the U.S. That is a scary headline to wake up to, for sure, and has a lot of folks wondering, what should I do when the stock market wakes up on the wrong side of the bed? That's the question on money rehabber Amelia's mind. Here she is. Hey, Nicole, the recent bad days in the stock market has got me wondering, what should I do with my investments when the market's down? If the stock market is down, novice investors will be incredibly quick to cash out or in financing terms, liquidate their investments out of fear that the market will

continue to crash. But here's the thing. Since its inception, the stock market has recovered from every single dip and recession. In our lifetime, there will be many more dips and maybe even recessions and depressions. However, there are some times where you should sell a stock at a loss. But that's a topic for tomorrow's episode. When people are surprised that the market is down, I am, well, surprised. The market is a roller coaster. That's what you're signing up for when you invest. Maybe more financial experts should spend time spelling that out as explicitly as I am now.

Maybe the stock market should come with a warning label, like I talked about in my recent episode on Robinhood. Until that day, here's a pill you're going to have to swallow. Chill. Yes, you need to take a chill pill. Yes, I know, it's the last thing you want to hear when you're going to have to swallow. Chill. Yes, you need to take a chill pill. Yes, I know, it's the last thing you want to hear when you're not chill, but you do need to take a chill pill. Don't try to jump off in the middle of the ride. Roller coasters can be scary. They can be invigorating. They can be topsy-turvy, just like the market. In the thick of the 2008 financial crisis, the Dow fell from a pre-recession

high of 14,000 to 6,500. That's a 50% drop. However, at the time of recording this, the Dow is at 35,500. That is more than double what it was in pre-2008 recession times. My point is, was in pre-2008 recession times. My point is the market fluctuates. Don't watch it too obsessively or you'll get nauseated. Do not make any investment decisions like any other major decision in your life when you're panicked or when you're drunk or drunk and panicked. The most seasoned investors do not liquidate their investments when the market is down. investors do not liquidate their investments when the market is down. Instead, they buy more. Pro investors buy on dips because from their perspective, stocks are on sale. I know this is super counterintuitive. If the market is tanking, why would I want to double down and buy more? It feels like running into a burning building, right? I totally get that. But let's

remember how you actually make money from investments. At a top level view, there are really two ways to earn money from stocks, earning dividends and selling shares. Dividends is a topic for another episode, but best practices around selling shares is at the heart of this market timing conversation. I'll give you an example of how you make money from selling stocks. Say you buy three shares of a stock for 50 bucks a pop, or in other words, you make a total investment of 150 bucks to buy three shares. After five years, let's imagine that stock is now worth $100 a share. You sell all three of your shares and have $300 to play with. That would mean after five years, you doubled your investment. Major kudos. Alternatively, at that five-year mark, you could say to yourself,

wait a minute, the value of this stock has doubled in the last five years. Maybe it will double again. If that's the case, I definitely want to keep some of my shares. So you decide to do a mix of selling and holding. You could sell just one of your shares for the market price of $100 and keep the two remaining shares in hopes that the stock price will continue to go up and up and up. In that scenario, you still have two shares of the stock and $100 that is now free and sitting in your brokerage account to move over to your bank account or reinvest in something new. This whole shebang, making a profit from selling a stock for more than you bought it for, is where the truism buy low, sell high comes from. And when is the perfect time to buy low? Market dips, of course. Investing pros look at the

timeline of how the value of a stock has changed over time. And if they see that the stock price has dipped within a greater trend of the market dipping, you better believe they buy that shit. Their reasoning, again, is that they're buying a stock on sale. And who doesn't love a sale? Don't forget, you are buying companies and brands in the market, not just the stock. The fundamentals of companies will go back to normal, and getting those that are solid, And getting those that are solid, just like well-made clothes, on sale could be a sweet deal and a great long-term investment. For today's tip, you can take straight to the bank. If knowing that you need to buy low makes your inner perfectionist kick in, and you feel like you just need to wait to buy until the stock is hitting the exact low, you need

to embrace the fact that you will never, ever know where the lowest point is. No one will. Instead, try dollar cost averaging, which is a basic investing tactic where you space out the amount you're investing over time. So instead of investing a big lump sum all at once, you make smaller investments over time, which increases the likelihood of you catching the market on good days. Now we should be able to embrace the contradiction that good days or good times to buy stocks are actually market dips. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin.

Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.