Late last week, the FTSE 100 took a tumble lower. From starting the week above 7,200 points, it went just below 7,000 points on Thursday. The market has already started to recover, but I still think I have some time to buy this current dip. In fact, I think that dips like these allow me to boost my chances of making longer-term profits.
Looking at past moves
The first reason I’d buy this dip is because other tumbles so far this year have all been followed by strong rises. For example, last month there was a similar period of a few days when the market nose-dived lower. This was mainly due to rising fears of UK inflation. Yet regardless of the reason, the dip below 7,000 points was reversed quickly. In fact, only a couple of weeks later, the market pushed above 7,200 points.
This move has characterised the FTSE 100 over the year so far. We’ve been seeing a steady uptrend with short periods of strong selling. If this continues, then dips allow me to buy at cheaper levels. Over the long term, this extra few percent can really add up from each dip.
The risk here is that a dip might turn into a crash. I can’t predict the future so this could happen at any time. However, a crash would need to have a large catalyst (as with Covid-19 last year). In this case, I can quickly see that this is something serious and act accordingly.
Investing regular chunks
Another reason I’d look to buy the dips in the FTSE 100 as they arise is because doing so ties in with my pound averaging investment strategy. This approach looks to invest in stocks on a monthly or quarterly basis instead of all in one go. This allows me to build up my portfolio over time, and is easier on my cash flow.
It also works well with buying the FTSE 100 when it’s having a wobble. I can never perfectly time the market, but if I have an amount that I’m looking to invest for August, then it would make sense to invest it now, rather than if the market was making fresh highs.
This ties in with a third reason. In order for me to stand a chance of making good long-term profits, I need to be invested in the first place. If I wait until the next market crash, I could be waiting for years. Instead, buying dips helps me to actually get invested in the FTSE 100 stocks I like. The more time I spend invested, the more chance I’m giving myself of making a profit.
Getting the most out of FTSE 100 stocks
Ultimately, I want to try and beat the FTSE 100 average performance by good stock selection. But if the index as a whole is down, this enables me to pick up the same stocks at cheaper levels. So buying dips remains a favourite way of mine to build a strong portfolio for the future.