Should you buy the dip, the rise, or follow your plan? We go over all three strategies in this week's Arista Advice. Find out which one has shown to be most successful!
Hello, welcome to Arista Advice! Question of the week is: "Paul, should I buy the dip, buy the rise, or follow my plan?" Performance trends come and go. Positive days come and negative days go. Historically, the stock market, going all the way back to 1900, 75% of the time the market is positive, and 25% the market is negative.
To test this theory Morningstar came out with a report that measures the historical performance of three different strategies. One is to buy the dip, one is to buy the highs, and one is to stay diversified. They went back to 2011 and buying the dip has to do with a 100% of the portfolio is invested on a yearly basis in the worst performing asset classes. Buying the rise is 100% of the portfolio is invested to buy the best performing asset classes from the prior year, and third stay diversified and reset annually through a rebalance every year.
Follow the plan did the best. $10,000 invested ended up yielding $25,414 a cumulative return of a 154%.
Compared to buying the rise which was $17,387, and buying the dip, you ended up with no money.
After over 10 years of investing, only $812 positive return. What's also important to remember is the portfolio of being diversified provided the best peace of mind, it provided the lowest anxiety, it provided high confidence, and good self-esteem for the investor instead of worrying what was down and what was up and how to rebalance and try to outsmart the market.
Don't try to outsmart the market. Remember to get a plan, stick with the plan until the plan sticks with you to get you to where you want to go. Remember, go to AristaWealth.com to get other videos, tools, tips, and resources to help you live an optimal life.