If you don't know why it is cheap, don't buy it just because it is cheap.

June 30, 2021

So let's talk about the opportunities and risks to buying during a market decline...

With dramatic market drops, it is easy to think that everything is a good buy.  The reality is good companies are not cheap. Focus on quality, strong balance sheets, defensive sectors and revenue focused outcomes. I believe it is important to have a multi-year outlook and stay invested during market volatility. Why stay invested? The S&P 500 Index posted the best month since 1987 this April (2020). Diversification and allocation can create better opportunities than trying to time the market. 

As for cashing out your current investments to find “cheaper” individual stocks here are some things to consider. Selling when the market is down makes the loss permanent and buying other stocks may still mean they need to be held for next 12 – 24 months minimum to realize any possible gain. Some of the companies will rebound, some companies are defensive and may be a good buy because the overall market is deflated, some company stocks were so over valued this correction was needed and they may never regain their previous highs. Buying or building a portfolio of individual stocks takes intense research and consistent investment to pursue long term gains. Day trading or short-term buys takes nerves of steel. You also need to know your cash flow extremely well, be committed to possibility of loss and the tax implications of short-term stock buy/sell actions. There are opportunities but you must be consistently positioning yourself to capitalize on them, that means having a dedicated (non-negotiable - is not for daily cash flow or discretionary spending) savings plan to realize the possible potential.

Not ready to chase individual shiny butterflies? This is when the power of dollar cost averaging can shine. I would urge you to keep contributing to your investments (once you are comfortable with your cash on hand, I think this is a must) Keep focus on the investments you have, but don't let fear prevent you from making other moves. Working with a Financial Advisor to build diversified portfolios that meet your goals and risk tolerances.