Buying the Dip? Here is How to Take Emotion Out of It

People with cash on the sidelines during any market downturn are always faced with a dilemma - When is the best time to buy into the market? How do we know where the "bottom" is? Do we invest a lump sum or small amounts over time?

At the time of writing this, the Dow Jones is on pace for its best week since the 1930s - it's rallied about 20% in the past couple of days. Because of this, investors waiting to buy the dip (and pick the bottom) are now paralyzed. They feel like if they get in now, they've missed out on gains. If the market goes lower, then they've "made a mistake." The reality is that no one can pick the bottom perfectly. Investors need to buy consistently on the way down AND the way up. The last thing you want is to be scared to make a move and never invest the cash.

Some people say we can go lower and/or "retest the lows." Some say that there are "opportunities" at our current levels. The truth is that no one knows. That's why it's important to have a systematic method for investing - in both bull markets and bear markets.

How to do it:

I created a simple spreadsheet (it's in "view only" mode, but you can easily make a copy in either Google Sheets or MS Excel for your use) that allows an investor to enter the potential stock or ETF they would like to buy. It then computes the share price at different levels so that investors can enter their desired trades at any time. You don't have to sit in front of the screen to get the best price. You're able to enter a limit order at the price you'd like and it can get executed if/when the share price hits your limit amount.

Example: If you want to buy VOO (Vanguard's S&P 500 ETF) at 30% off of all-time highs, you create a buy limit order for $218.11 per share. You can enter the trade today and then leave it open (even for 6 months) and it will execute on its own.

Again, it's impossible to pick the exact bottom, so one strategy is to enter multiple trades at different share prices to make sure you take emotion out of it and still not "miss" anything. Investing can be emotional, so making sure you have a systematic approach for your investment plan is key.