Buy the Dip: 7 Ways to Take Advantage of Market Drops

Start Slideshow

August started off with some steep declines in major market averages. On Aug. 5, the Dow Jones Industrial Average, S&P 500 and Nasdaq all dropped at least 2.5%, following declines in each of the two prior trading sessions.

While the averages have recovered a bit in the days since, investors and advisors have to be wondering what the rest of 2024 holds for the markets.

This might include future volatility and perhaps additional sudden market declines. And that brings buying the dip into the advisor-client conversation.

When investors talk about this tactic, that often means trying to realize a short-term gain from a stock that has followed the market downward. Perhaps this is a stock that the investor views as a solid company whose shares have simply been oversold in the downturn.

This type of dip buying is usually about buying shares that have been beaten down in the short term with the hope they will recover quickly when the market turns around. Often the investor is looking to unload the shares for a quick profit.

Things don’t always go as planned, but there is nothing wrong with using a dip in the markets to buy into certain investments. As with all investing, advisors and their clients should do this in a planful way.

Here are seven ways that advisors might help clients use market dips to their advantage.