With the stock market hitting all-time highs and climbing steadily since 2022, the environment is ripe for one of investing’s frequently used phrases: Buy the dip!
The idea sounds simple: You swoop in when prices fall and profit when they recover. But in practice, buying the dip is rarely as straightforward as it sounds.
What People Mean by a “Dip”
When people talk about “a dip,” they’re not describing a bear market or a full-blown crash. They’re usually talking about a short-term pullback — a few percent, maybe 5% to 10% — that feels uncomfortable but not catastrophic.
A “dip” implies something temporary, not a lasting decline. It’s a pause, not a collapse. Investors expect prices will soon bounce back, and they want to take advantage by buying while things are temporarily cheaper.
That belief that this is just a blip is what makes the phrase so appealing. It feels like getting a discount on something valuable you already wanted. But just because the market is down doesn’t mean it’s guaranteed to go right back up.
Here’s the problem: When you “buy the dip,” you’re predicting that it’s just a dip. And that’s market timing, which rarely works the way investors hope.
How To Buy the Dip
For argument’s sake, let’s assume it really is a dip, a short selloff before a return to ongoing growth. How exactly would an investor buy the dip?
If you already have a long-term, fully invested portfolio, there are only two ways:
- Use cash that’s sitting on the sidelines.
- Sell something else to buy more stocks.
Each comes with tradeoffs most investors don’t think through.
Using Cash To “Buy the Dip”
If you have uninvested cash, you might see a market drop as a buying opportunity. But that cash has to come from somewhere and using it creates consequences.
There are only two possibilities:
You’re using money you wanted to keep as cash. Maybe it’s part of your emergency fund or short-term savings. Using it to buy stocks might feel smart, but it leaves you exposed if you need that money soon. Money expert Clark Howard warns against this repeatedly: Never risk short-term money in long-term investments.
Or you had more cash than you should have. If you’ve been sitting on a large cash pile waiting for the “right time” to invest, buying during a dip just means you’re finally putting that money to work, which is market timing by another name.
Selling Other Investments To Buy Stocks
The other way people “buy the dip” is by selling something else, usually bonds, cash equivalents, or defensive funds, and moving that money into stocks after a pullback.
This can make sense if you’re rebalancing your portfolio back to your target mix. For example, if your goal is 70% stocks and 30% bonds, and a market decline knocks your stock allocation down to 65%, then shifting a few percentage points from bonds back into stocks is a disciplined form of buying the dip.
But if you sell bonds just because stocks “look cheap,” you’re not rebalancing — you’re gambling on the outcome. Here’s what happens either way:
If you’re right and it was temporary, stocks bounce back, and now you might have 75% of your portfolio in stocks instead of your target 70%. What do you do? If you leave it there, you’re permanently taking more risk than you planned for. If you rebalance back down, you’re selling stocks to buy bonds, which means you just went through all that effort to sell bonds, buy stocks, then turn around and sell stocks to buy bonds back.
If you’re wrong and it’s a bear market, stocks keep falling 20%, 30%, or more. You sold your stabilizing assets (bonds) to buy more of the thing that’s declining. Your portfolio takes a much bigger hit than it would have if you’d stuck to your original plan.
The Bottom Line on Buying the Dip
Here’s the fundamental problem with buying the dip: It’s a three-step process where each step creates its own issue.
First, you have to correctly predict it’s just a dip. You’re betting this is a temporary pullback and not the start of a longer decline. That’s market timing, which rarely works consistently.
Second, you have to disrupt your existing allocation. To buy the dip, you’re either using cash you should have invested already, dipping into money earmarked for other purposes, or selling assets (like bonds) that you have in your portfolio for a reason.
Third, you have to figure out when to rebalance back. If you’re right and stocks recover, you’re now overallocated to stocks. Do you sell them to get back to your target? If so, when?
Why Clark Howard Says It’s Better to Stay the Course
Clark reminds listeners and readers that the best investors don’t try to predict short-term market moves. The people who win with investing aren’t the ones who move in and out — they’re the ones who stay in.
Clark’s approach is simple: Keep investing automatically and consistently. That way, when dips happen — and they always will — you’ll be buying them without needing to make a big decision in the moment.
