In the depths of the Covid pandemic, many a stuck-at-home investor dipped a toe into the stock market to make the most of tanking share prices.
In many cases, this could have delivered a healthy return over the years that followed.
Perhaps spurred on by past gains, almost two thirds of investors say they still choose to buy the dip during times of market decline, according to research by Etoro.
Megan is one of these investors. When markets dropped following Donald Trump’s ‘liberation day’ tariff announcements this spring, the 31-year-old personal trainer from Bedfordshire saw an opportunity to make money when others were running for the hills.
With the effect these announcements had on global markets, Megan’s investment portfolio fell in value by £9,000.
She made the decision to sell her positions and reinvest in select stocks, including JP Morgan, Lockheed Martin and American Superconductor.
Megan made thousands by buying the tariff dip
Megan added: ‘I knew that it was always a risk, but it was a risk I strongly believed was going to pay off. And it did.’
Since April, Megan’s portfolio has risen steadily in value and is now up by £21,000.
She said: ‘I first started investing was back end of 2021. So I had missed the significant dip that came with Covid, but I studied that and looking at the charts realised that that would have been such a fantastic opportunity to invest.
The Covid dip, she says, showed her there was serious money to be made from market dips – though of course there is no guarantee stocks will recover.
‘People get scared and they pull out at a loss. But I thought, no – this is such an opportunity”.’
However, while money can certainly be made when markets drop, timing is everything.
Megan said: ‘I wait for slight indications of a reversal or basically enough time to realise that people have psychologically chilled out. People panic, but they only panic for so long.
‘As soon as you see that reversal trend, people start to jump back in.’
She added: ‘Obviously, I weigh the opportunity against areas of support and resistance. I look for an optimal time to see if it is going to reverse or hit an area of resistance and go back down.’
When do investors buy the dip?
When the market does hit a rocky period, investment engagement sees a significant upswing. But how far does it have to fall for investors to take notice?
According to Etoro, a fifth of investors who do buy the dip would so when the market was down between five and 10 per cent. A quarter would wait until the market falls between 11 and 20 per cent, and just over ten per cent would buy only when the market falls more than 20 per cent.
Five per cent would do so during any notable market decline, regardless of how far it falls.
Data from Google Trends reveals a noticeable spike in searches for terms such as ‘stock market’ and ‘S&P 500’ around the time of market collapse that followed Donald Trump’s ‘liberation day’ tariff announcements.
Etoro’s data shows 32 per cent of investors find themselves checking their investments more frequently during times of market turmoil.
Megan says it is important to be emotionally detached from her portfolio, however.
‘A lot of people obviously get a fear of missing out, and then they buy in too late. They might still have the potential for gains, but they need to be cautious,’ she says.
‘I think it’s a case of “If you’ve missed it, then you’ve missed it”. The worst thing you can do is just simply go in to buy something just because you feel that itch to buy something.’
Etoro’s research suggests that volatile periods might even be bringing more investors into the market, especially among younger generations.
More than half of both Millennials and Generation Z said that after periods of market volatility they noticed an increase in discussions about investing in their social circle. In comparison, the same was true for just 35 per cent of people overall.
Lale Akoner, global market strategist at Etoro, says: ‘Periods of market volatility often act as catalysts for reflection and conversation. They heighten collective awareness, not just of risk, but of opportunity, leading many to engage more actively with their investment beliefs.
‘Our findings show that Gen Z and Millennials, having grown up in an era where investing is both digital and social, are particularly attuned to this.
‘Their openness to discussing markets reflects a cultural shift away from the old stigma of “money talk” toward a more informed, peer-driven approach to financial thinking.’
But getting caught up in buying the dip isn’t always the right move, and doing so could expose you to significant losses.
For all the calls to buy the dip, there are many investors who would instead stick to the adage that the best returns come from time in the market, rather than timing the market.
Megan falls somewhere in between.
She told This is Money: ‘I like to reassess my positions on a regular basis, definitely monthly, but I go into it with the idea of buying stocks that have long-term growth potential and aren’t going anywhere.
‘Obviously, that can change based on what’s happening in a company or what’s going on in the economy, so it’s important to stay up to date.
‘I’ll get rid of stocks if they aren’t heading where I want them to.’
Megan chooses companies with strong fundamentals and staying power, meaning that they are likely to remain in demand over the long term.
Do the risks outweigh the benefits?
The danger for investors, as a stock or market plummets, is that it will carry on doing so.
Laith Khalaf, head of investment analysis at AJ Bell, says: ‘The key risk is that what looks like a dip could become a deeper decline, or recovery may take much longer than anticipated.’
‘Timing the market is notoriously difficult, even for professionals. For most investors, a disciplined approach of regular saving, such as monthly contributions to a pension or Isa, helps smooth out volatility and build wealth steadily over time.’
A lot of people obviously get a fear of missing out, and then they buy in too late
Meanwhile, Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management, adds: ‘Not all dips are created equal. Some recoveries take time – sometimes decades.’
Back in 1990, the Nikkei 225 slipped 10 per cent from its peak. Not accounting for inflation, an investor who bought in May 1990s would have had to wait 34 years just to break even.
Lafargue adds: ‘So while buying the dip – that is to say being invested – makes sense, investors need to follow a few key principles: always favour diversification, size investments appropriately, and don’t be impatient.’
In many cases, the reason for a stock falling doesn’t relate to macro conditions like Trump’s tariffs, but could be due to an issue within the company itself.
Akoner said: ‘It’s essential to distinguish between temporary volatility and a genuine deterioration in a company’s outlook. Price alone doesn’t make an asset a bargain and investors must always assess intrinsic value.
‘The goal is to find assets with a margin of safety, where the stock trades below its true worth due to transitory setbacks.’
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