Half of UK investors plan to ‘buy the dip’: is this a good idea?

New research shows that close to half of UK investors are planning to ‘buy the dip’. But is this actually a good idea? Sean LaPointe takes a closer look.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Concentrated young african american black guy sitting on heated floor at modern coffee table in living room, looking at laptop screen

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Stock markets around the world have been struggling since the turn of the year. In the UK, the FTSE 100 is down 4% from its January peak, and across the Atlantic in the US, the flagship S&P 500 has fallen 13% since the beginning of the year. Speculation is rife that even more stock market drops could be on the way.

However, according to new research from personal finance comparison website Finder.com, many UK investors actually see the drop as a buying opportunity and are planning to top up their portfolios with more stocks. But is ‘buying the dip’ a good idea? Let’s find out.


Why are stock markets struggling?

One of the contributing factors is the current conflict in Ukraine, which has created unease and uncertainty among investors.

Investors are also concerned about the prospect of rising interest rates and potentially tighter monetary policies. Here in the UK, the Bank of England is expected to raise interest rates soon to combat inflation, which has recently reached a 30-year high of 5.5%.

A rise in interest rates means higher borrowing costs for businesses, which may have a negative impact on their stock prices.

Will stock markets fall even further?

Of course, nobody has a crystal ball. But there are growing concerns that a full-blown stock market crash could be on the way.

One expert has suggested that the S&P 500 could fall by as much as 80% this year. We’ll have to wait and see if that actually happens.

In the meantime, Finder has created a live chart for S&P 500 investors to compare how the current drop compares to previous crashes in the last 50 years, such as the 1973/74 crash, the dot-com bubble (2000-2002), and the financial crisis (2007-2009).

The chart shows that the worst stock market crash in the last 50 years occurred during the financial crisis of 2007-2009 when the S&P fell by 55.5% after 351 days. If the current drop in the S&P 500 is to become the worst crash in history, it clearly has a long way to go.

How are investors reacting?

According to a new study from Finder, half (48%) of UK investors say they are planning to ‘buy the dip’.

A further 4% of Brits who don’t invest are also planning to buy stocks during the dip. This means that about one in eight Brits (12%), or approximately 6.2 million people in total, intend to ‘buy the dip.’

The research also shows that the younger Brits are, the more likely they are to ‘buy the dip’. Almost one in six young people aged 18-24 are planning to buy the dip, compared to less than one in 10 of those aged 65 and up.

More men than women also plan to buy the drop (15% vs 8%).

Not all Brits plan to invest under current conditions, however. Some 80% of Brits don’t currently invest and won’t be tempted to start by the current dip. And 52% of current investors are not planning to buy any more stocks just because of the current market drop.


Is ‘buying the dip’ a good idea?

A stock market drop can provide investors with an opportunity to buy additional stocks for their portfolios at a reduced price. But this strategy could also be counterproductive.

Finder.com’s Investing Writer, Zoe Stabler, explains: “It can seem tempting to invest when markets are dropping, but there is no telling when a market crash will end, and you could end up experiencing heavy losses early on if it continues to fall.”

Rather than trying to time the market, which is basically what investors are doing by ‘buying the dip’, Stabler advises that investors should pursue long-term investment strategies.

For example, a much better strategy for investors who are looking to get more value for their money when buying stocks is what is called ‘dollar-cost averaging’.

This is where you invest a set amount of money in stocks at predetermined intervals over time. Most top-rated share-trading accounts and stocks and shares ISAs allow you to set up an automatic plan to buy at regular intervals. Alternatively, you can make your own purchases on a fixed schedule (say, on the first of every month).

By buying stocks at various prices on a regular basis, you increase your chances of paying a lower overall average price for them than you would if you tried to buy them when you think the price is just right, such as during a dip, which could end up working against you.

As Stabler explains, this in theory “means that you aren’t putting all your eggs in one basket and you are likely to end up investing at good times as well as bad times”.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »