hey guys it's adrian here the canadian in a t-shirt and today i'll be breaking down what to do
when the stock market takes a downturn do we buy the dip do we go all in with a big pile of cash to
buy at a discount or do we stick with dollar cost averaging i've been getting a ton of questions
about this lately so in this video i want to cover the best investing strategy to handle this
in the long term but also what to do in the short term when we're in the middle of a market dip the
past few weeks we've seen a lot of volatility and some huge drops especially in the growth sector
this is mainly caused by fear and uncertainty with rising levels of inflation growing interest rates
in the near future and of course the spread of new variants you've probably logged in
and seen a lot of red losses across your portfolio but right off the bat i want to assure you guys
do not panic for the majority of you out there the only way to actually lose money right now
is if you give in to fear and sell your stocks at a loss that loss you see isn't real sure your
stocks are down but you haven't actually lost any money yet that loss only becomes real if you
decide to sell your stocks and that's the worst thing to do if you believe in the long-term future
of this company then do not sell hold on to these stocks and let them recover it might take months
or even a year but if this is a quality company it will recover and not only will you not lose
a single dollar but you'll actually earn a great profit in the long run i've already made a whole
video on what to do when the market crashes and how to avoid panicking and selling at a
loss so make sure you check out that video but i want to start off with this important lesson to
reassure you guys especially new investors who've never experienced drops in the market like this
market drops and downturns are totally normal and are to be expected the stock market works
in cycles and there will always be another market crash or even a recession no one knows when that
crash will happen but historically speaking we see a significant market crash every 10 years or so
that's just part of investing so you have to get used to it in fact market crashes can be
a good thing you've heard me say many times in my videos that when the market drops i look at it as
an opportunity to buy quality stocks at a discount when investors panic and sell their stocks
that causes the stock price to drop even though nothing has fundamentally changed with the company
it's still the same great company still providing value to its customers and still earning a profit
but now the price is 10 lower than usual so while many people are selling off their shares i'm
buying more shares and at a cheaper price and when the market recovers in a matter of months
and the stock price returns to normal i'll have made a very easy profit so yes buying stocks at a
discount can be a great opportunity but that does not mean that you should try to time the market
if you've watched my previous videos you know that i am a firm believer in investing in the long term
time in the market will always beat timing the market in fact trying to time the market
is impossible it can't be done there will always be another drop or another crash in the future but
no one knows when that will happen the market could crash next month or later this year or
10 years from now nobody knows when it will happen and anyone who claims that they know
is lying it is fundamentally impossible to predict when the market will drop and even if the market
has dropped no one knows if it will continue to drop or if it's reached the bottom and will start
to rise back up by definition you won't know if you're at the lowest point until it starts
to climb back up and by then you've already missed it if you're trying to time the market
meaning you're waiting to buy stocks at the lowest price it is fundamentally impossible to know
when the lowest point is even if you're at the lowest point there's no way of knowing it
until the price climbs back up and then it's already too late you've missed your chance so
don't even try timing the market cannot be done to make it even worse let's say that you could
see the future and you knew exactly each time the market dropped timing the market still wouldn't
work because there just aren't that many market drops the stock market is always fluctuating up
and down with an overall upward trend but it's usually pretty steady it doesn't really shoot up
or shoot down too fast so if you're trying to time the market waiting for big dips they don't happen
very often looking at the u.s stock market over the past 20 years we see two proper crashes where
the market fell by over 20 percent back in 2008 and of course in 2020 but if you're waiting for
dips you usually only see a handful of small dips every few years in fact there are periods of years
without a single significant dip a classic example is the bull market between 2003 and 2008
here we saw a period of five years without a single drop of five percent in the us market so
if your strategy was to time the market and only buy the dip whenever you see a five percent drop
you would have been waiting on a pile of cash for five years before your opportunity came up
imagine that for five years your cash has just been sitting there collecting dust and losing
between two and three percent in value every year due to inflation while you're waiting to outsmart
the market and buy the dip even worse you missed out on five years of fantastic capital gains and
dividend income that you could have earned if you had invested in the market throughout this time so
please don't try to time the market it can't be done and even if you had a crystal ball and you
knew when the market was going to drop it would still cost you holding on to cash missing out
on months or even years of growth so instead of sitting on the sidelines trying to time the market
for drops it is far better to consistently invest in the stock market whether the market is going
up or down and this strategy is called dollar cost averaging historically speaking dollar cost
averaging is the most effective investing strategy earning you the highest rate of return in the
long run plus it's actually the easiest and most stress-free way to invest that's why i recommend
it to everyone especially to beginners here's how it works with dollar cost averaging you don't even
try to time the market you just consistently and regularly put money into stocks no matter what the
market is doing if you work a job put money into your portfolio every two weeks with your paycheck
or maybe once a month whatever schedule works for you make a habit of putting money into the stock
market on a regular basis and stick to it we don't care what the stock price is at that moment we
don't care if the market is going up going down or going sideways at the end of the month we invest
this takes all the emotion and stress out of the equation we're no longer worried about am i buying
at the right time what if the market drops or should i wait until next week forget about trying
to buy at the perfect time the market fluctuates every single day so sometimes we'll buy high
sometimes we'll buy low but if we buy consistently in the long run it will smooth out and we will be
buying in at the average price of the market and in the long run our investment grows with
the market that's why it's called dollar cost averaging if you've seen my members only videos
then you know that this is the strategy that i use at least once a month i invest money into my
tfsa rrsp and margin account the amount of money i invest can fluctuate depending on my expenses and
income but i make a habit of investing whatever i can every single month whether the market is going
up or going down that's because i'm investing in the long run all the money that i'm putting into
the stock market is money that i will not need and i will not touch for at least five years ideally
even longer until retirement so i don't care about the short-term market performance because i know
that in the long run my investments will grow in value and dollar cost averaging can look different
for different people some people do it entirely on autopilot where a fixed amount of money will
be taken out from their bank account once a month and invested into an etf there's no decisions or
stress or work required in my case i don't have a full-time job so my income can really fluctuate
month to month which is why i manually invest my money every month and that's fine just find
a routine that works for you and if you'd like to see my exclusive videos to see my portfolio and
what stocks i buy every single month hit that join button down below to join my membership program
unfortunately the join button won't work on an iphone but it will work on a laptop including
macbooks and on android devices but it will cost five dollars a month so please only join if you
want to and thank you for supporting my channel so that's the key to investing in the long run
you never want to be sitting with a big pile of cash waiting for the right moment you should be
consistently investing in the market and focusing on long-term growth that way your money is always
being useful it's invested and making money for you even in your sleep but what about the short
term what if you have a big pile of cash and the market takes a dip let's say you get a big bonus
from your job or you receive an inheritance now you have a large sum of money and the market is
currently down so what do you do do we spend all this money at once buy stocks in one lump
sum to take advantage of this discount in the market i'll say it again do not try to time the
market if you go all in and invest all that money today you're effectively trying to time the market
the market is down so yes buying stocks today at a discount is cheaper than buying stocks a month ago
but what about tomorrow what about next week we don't know if the market has reached its lowest
point and again it's impossible to predict that but if you invest that large sum of money today
and next week the market falls even further you've just missed out on an even better opportunity
once again i suggest taking the stress and emotion out of the equation don't go all in today and
don't sit on the sidelines waiting for the perfect moment instead i would spread out my investment
over the next several weeks if you have five thousand dollars in cash right now don't spend
it all at once my advice would be to invest a thousand dollars this week a thousand dollars next
week and another thousand dollars the week after that invest this money over the course of the next
five weeks just like with dollar cost averaging some weeks you'll buy high some weeks you'll buy
low but overall you'll smoothen out the volatility of the market and you'll end up with a reliable
average value and once you've invested this large sum of money continue on with your regular dollar
cost average strategy investing every month or whatever schedule you decide on and remember
it's your money and your decisions if you want to have some fun and try to outsmart the market
then go for it as long as you understand the risks that come with it personally i never try to time
the market but i do occasionally make decisions based on the current state of the market here's an
example if you've seen my canadian dividend stock videos you know that i am a huge fan of canadian
bank stocks especially td and BMO they are some of my all-time favorite investments and on
any given day i would be happy to buy shares for each of them because i believe in the long-term
future of both companies so this month let's say i wanted to buy a thousand dollars worth of td stock
right now td is trading at all-time highs it's still a great investment and i'm happy to pay
full price for it but today at this moment BMO stock took a little dip so instead i decided
to buy BMO stock to take advantage of this discount that's totally fine i'm not breaking
my rules i'm just choosing to buy BMO while it's on sale but next month i will likely buy td
to balance it out this only becomes a problem if every month i decide to buy BMO over td
in that case yes i'm basically timing the market and my portfolio will be unbalanced my point is
that you're allowed to have fun and make your own investing decisions just don't let yourself
get carried away with emotions especially fear and greed and if you're not sure how to actually buy
stocks or etfs click the pop-up at the top right to watch my equestria tutorials where i give
a step-by-step walkthrough on how to buy canadian and u.s stocks using questrade my favorite online
broker and if you'd like to get started with questrade click my referral link in the box below
and you'll get $50 in commission free trade rebates for the first 30 days
when you sign up that basically means that your first 10 stock trades will be commission free
that saves you $50 plus i'll get a small referral bonus as well so remember if your stocks are down
right now but you still believe in the long-term future of the company do not panic and do not sell
let them recover and you can use this opportunity to buy quality stocks at a discount just don't
spend all your money at once spread out your investment over the next several weeks the stock
market can be very unpredictable in the short term so do not try to time the market instead
take advantage of dollar cost averaging and invest in the market regularly every month or every two
weeks this strategy not only outperforms waiting for the dip but it's also simple and stress free
thanks for watching guys and be sure to like comment and subscribe if you found this video
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so thanks everyone and i'll see you guys on the next episode of the canadian in a t-shirt bye guys