How can you fully invest and not sell, then buy during market corrections?

It’s a ‘buy and hold’ investor’s dilemma. Isn’t it impossible to do all 3 things? What are the experts on about?
The post How can you fully invest and not sell, then buy during market corrections? appeared first on The Motley Fool Australia. –

Retail ASX investors are always told to be in it for the long term.

Trading is gambling, while ‘buy and hold’ is true investing, the experts say.

You see, a stock market will have a bad day, month or even year. But eventually, it moves in an upwards direction.

So if you can ignore the volatility and stay fully invested for the long-run, then the chances are your wealth will have grown at the end of it.

Sensible advice.

The other bits of strategy we hear are:

Don’t sell during market corrections
Buy bargains during market corrections

Also eminently sensible. 

If you sell when shares have plunged, all you’re doing is turn a paper loss into an actual loss — without any chance of recovery.

And if you can pluck up enough courage, buying shares during corrections is like picking up a pair of pants at the Boxing Day sales.

They’re still the same trousers, just cheaper.

But hang on a minute

This is all good and well, but how can you possibly practise all 3 of the strategies in the ‘buy and hold’ game?

If you’re fully invested, you have no spare cash to invest. And you don’t sell during a correction, so you still don’t have any cash.

So how do you buy up those bargains without any money?

The Motley Fool asked some experts as to how a retail investor can possibly carry out all 3 pieces of advice.

You really can’t do all 3

“Those are all worthy sentiments. And I think they are all good advice,” said The Motley Fool Australia chief investment officer Scott Phillips.

“But yes, they’re incompatible! But they’re incompatible in the same way that no 2 investors are the same or find themselves in the same circumstances.”

Phillips revealed that he preferred to stay fully invested, and therefore sacrifice the “buy bargains” mantra.

“I rarely have ‘extra’ cash when a crash comes. But I think that’s the right approach, given that the market tends to go up more than it goes down and, over time, continues to set new high watermarks, one after the other.”

Shaw and Partners senior investment adviser Adam Dawes takes the opposite approach.

“We always like to keep at least 10% of clients’ money in the bank for opportunities — or using a broker expression ‘Keeping your powder dry’.”

Not being invested will cost you

To Phillips, to have money lying around doing nothing is a wasted opportunity.

“To not be invested would be to bet against the tide of history, which has continued to push markets higher,” he told The Motley Fool.

“And if you’re waiting to buy on a ‘dip’, you might end up missing a 20% gain while you wait for a 5%, 10% or 15% ‘dip’ to come along!”

And it’s not like anyone knows whether they’re at the top, bottom or otherwise anyway.

“It’s hard enough to know what mood the market is in today, let alone tomorrow, or next week,” said Phillips.

“I’m not going to say it’s a waste of time trying to guess but… Ah, bugger it. I’ll just say it: It’s a waste of time.”

Beware of the bargains during market corrections

Both Dawes and Phillips agreed on one thing though.

If you’re going to buy up bargains during a market correction, you better make sure the business is sound.

“My mantra in the recovery phase or bottom of the market is ‘Don’t be a hero’,” Dawes told The Motley Fool.

“Buy good quality stocks and put them in the bottom drawer. Example: Commonwealth Bank of Australia (ASX: CBA) at $55, BHP Group Ltd (ASX: BHP) at $25. You need to look past the valley and just buy good quality business that will last the test of time.”

As for selling during a crash, aside from the obvious loss of money, Dawes also pointed out a devastating psychological effect.

“If you sell, then most clients don’t get back in as they are paralysed with fear as markets continue to recover,” he said.

“It is not wise to sell as markets always come back. March 2020 it came back within 6 months and GFC took a little longer.”

The post How can you fully invest and not sell, then buy during market corrections? appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

More reading

Broker tips BHP (ASX:BHP) and this dividend share to provide huge yields
After falling 16% in a month, is the BHP (ASX:BHP) share price now a buy?
5 things to watch on the ASX 200 on Monday

Is this ASX 200 miner one of the best value shares to buy today

Here’s why the CBA (ASX:CBA) share price has beaten the ASX 200 in the last 3 months

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!