I have been buying the dip aggressively since March 2020 when I wrote How do you predict a stock market bottom like Nostradamus?. My daughter was born four months earlier and something clicked in me, requiring me to aggressively invest in her future in an increasingly difficult world.
Since then, I’ve continued to buy virtually every meaningful dip (2%+) as I remain optimistic about America, artificial intelligence, consumers’ insatiable appetite for spending rather than saving, and economic policies designed to keep voters happy so politicians can stay in power.
At the same time, the experience has taught me an important lesson: you can be right in the long term and still wrong in the short term if you buy the dip too often and too early.
When buying the dip becomes a mindless habit
While updating an older post from March 2022 about how retirement withdrawals will drop during bear markets, I came across a chart that caught my eye. The image shows how many times I bought the dip in the first quarter of that year. It was fascinating and a little humbling.
2021 had been a phenomenal year of +26%, following a +16% in 2020 for the S&P 500. After two consecutive years of healthy gains, it felt unnatural that stocks started to correct in 2022. It was as if investors had collectively forgotten that stocks sometimes go down.
When the market fell in early 2022, I started buying VTI repeatedly. February was particularly tough, both for the market and for my investing psyche. I kept buying and the market kept falling. Looking back at the chart, I counted at least fourteen separate dip buys in that one month.
The excitement of buying shares at a two to five percent discount quickly disappeared the S&P 500 then fell another 20+ percent from peak to trough! Buying the dip felt good emotionally, like I was doing something about losing money, but the timing was far from ideal.
Ultimately, I should have spread my 2022 dip purchases over a longer period. This is important context because as we enter 2026, we’ve had three consecutive years of double-digit gains in the S&P 500. And the same thing could happen again with so much nervousness around valuations and geopolitical uncertainty.
Don’t buy too aggressively too soon
I’m pretty sure there will be another correction of more than 10 percent in 2026. When that moment comes, you want to have enough money to take advantage of it. The problem is that it often takes months for meaningful corrections to be fully implemented. If you commit too much capital early, you may find prices drop further without enough dry powder left.
At the beginning of 2022 alone, I bought more than 35 times the dip in the first quarter. Nevertheless, the market continued to shrink. The lesson was clear: initial pullbacks are often just the beginning when valuations are high or policy uncertainty increases.
Once markets decide that valuations are too expensive or that companies’ earnings expectations need to be adjusted, this could take a long time several quarters of the earnings reports that sentiment changes.
Management teams need time to adjust guidelines and strategies. That process does not happen overnight, and therefore small declines of three to five percent should not be viewed as unique opportunities.
How long corrections and bear markets typically last
Historically a typical 10 percent correction takes about three to four months from peak to trough. Some resolve more quickly, while others take longer, depending on economic conditions and policy responses.
Bear markets, defined as declines of 20 percent or more, last longer. Average bear markets last roughly 9 to 14 months. Some are short and violent, while others are lower over several quarters.
This is important because buying too aggressively early in a recession can leave investors underprepared for later, more attractive opportunities.
A simple approach is to divide your projected cash flow and existing cash pile over three to fourteen months to establish a basic monthly investment amount. If you prefer to invest weekly, you can divide the total by twelve months, or roughly fifty-two weeks, to arrive at a fixed weekly contribution.
Thinking in quarters instead of days helps. Quarterly results are the moment when real changes in sentiment, expectations and strategy occur. In between, you mainly respond to sound.
And yes, technically this is market timing, which goes against the usual advice of buy and hold for the long term. But the truth is that every investment decision involves some form of timing. Don’t fool yourself into thinking you’re not dollar-cost averaging or timing the market, because you are.
Valuations are more important than most investors admit
From the beginning of 2023 to the end of 2025, the market increased by almost 80 percent. After such a run, a meaningful correction should come as no surprise.
Today, the S&P 500 still trades at about 22.5 times forward earnings. Historically, when the forward price-to-earnings ratio is more than 23 times (or 30 times backward), subsequent ten-year annualized returns ranged from roughly minus 2 percent to plus 2 percent per year. That’s a far cry from the double-digit returns that many investors now expect.
If valuations were to return to a long-term average closer to 18 times earnings, a correction of 20 percent or more would not be unreasonable. This is why valuation context matters when deciding how aggressively to buy dips.
The good news is that many of us thought this in early 2025, when the price-to-earnings ratio was also around 22x. Yet we still enjoyed double-digit returns as earnings in the S&P 500 before dividends rose about 16.5 percent. The bad news is that the chances of another double-digit return in the future are smaller.
Make sure you have ongoing cash
Looking ahead, 2026 is a midterm election year. Historically, the medium years tend to have higher volatility due to policy uncertainty. Now there is also increased geopolitical uncertainty.
Against this backdrop, investors should hold at least 5% of their portfolio in cash, and possibly even closer to 10%. With returns on cash still above four percent, the opportunity cost of holding cash is relatively low, especially compared to the flexibility it offers during market corrections.
Buying the dip has worked incredibly well over the past decade, especially during periods of aggressive monetary support and rapid technological advancement. I remain optimistic about the long-term trajectory of the US economy and stock markets. However, optimism does not eliminate the need for discipline when valuations are under pressure and markets have made outsized gains for years.
The key is not to stop buying the dip altogether, but to pace yourself. Corrections and bear markets typically last months, not days. By thinking in quarters, respecting valuations and keeping sufficient cash on hand, you give yourself flexibility. Flexibility allows you to remain calm and opportunistic.
Build wealth steadily without running out of ammunition too early.
Questions from readers
- How much cash do you currently have in your investment portfolio, and has that percentage changed as valuations have risen?
- Do you buy every dip automatically, or do you scale up based on valuation, time or market sentiment?
- How do you feel about buying dips for your children’s investment accounts during long bull markets?
Diversify your assets beyond stocks and bonds
One way to avoid buying the dip too early or too often is to broaden your investments. Stocks and bonds are fundamentally important, but when valuations are high and volatility increases, relying solely on stocks can make timing mistakes costly.
That’s why I invest in real estate, which offers income potential and diversification without forcing you to react to every market downturn. Fundraising enables passive investments in residential and industrial properties throughout the Sunbelt, where valuations are typically lower and rental yields higher.
Fundrise also offers exposure to private AI companies such as OpenAI, Anthropic, Anduril, and Databricks, helping to balance a portfolio without chasing short-term moves.
I have personally invested over $500,000 with Fundrise. With a minimum of $10, it’s an easy way to diversify while staying disciplined during volatile markets. Fundrise has been a sponsor for many years because our investment philosophies are aligned.
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Background: I have been investing in equities since 1996, including 13 years in the sector at Goldman Sachs and Credit Suisse. Today, I manage an eight-figure investment portfolio that allows me to provide for my family. I have a BA from William & Mary and an MBA from Berkeley. In 2009, I helped spark the modern FIRE movement with the launch of this site.
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