Stock markets are seeing an increasing popularity of investment into companies whose stocks encounter a significant drop in value. Investors looking for a short-term turnover or longer-term sell enjoy this method for revenue or diversity. But financial experts are averse to leaning on this investment strategy, seeing its flaws versus other methods.
Both of these methods are effective depending on the individual and their intentions through investing. This depends on if an investor seeks a short-term increase in revenue compared to the buy-in. Or if the investor is looking to build a portfolio centred around long-term maturity. We weigh up the strengths of the two, allowing you to see what method will work for you.
Dip to Buy Versus Buy and Hold – The facts
Dip to Buy Investing
This strategy hinges upon a keen observation of existing trends within the stock market for investment. The method is based upon market fluctuations, allowing investors to buy stock at a reduced value. These stocks are then expected to appreciate in value over time, allowing the investor to secure good returns upon selling.
An example of this is the Cryptocurrency market when Bitcoin fell to $6,200 last month. Those seeking to invest could buy in and expect incredible returns on their initial buy-in value. This method carries risks; the Dot-com crash lost investors money when they bought into stocks. The inability of these companies to generate revenue meant those buying at a dip were left out of pocket.
Buy and Hold investing
Unlike Dip to Buy, this is a passive investment strategy, allowing the stock to mature over time. This approach only requires early strategising for the preliminary investments for the portfolio. With the portfolio developed, the investor won’t play an active daily role in daily market fluctuations.
Long-term investment offers advantages such as lower tax rates over time, and better revenue yields. Over time, market performance favours this longer, passive strategy compared to a shorter dip method. A more active approach is useful in the event of a downturn in a weaker investment portfolio, however.