Buying the dip can be a retiree’s best friend. Here’s how seniors can shop safely.
It’s difficult at any age to buy stocks when prices fall, but for retirees it can be particularly nerve-wracking because their time to recovery is shorter if stock values continue to fall. But buying a dip with caution can not only boost your short-term returns, but also build your portfolio’s long-term resilience.
Retirees in their 60s or early 70s with a longer time horizon may benefit from buying battered, high-quality companies and dividend-payers, for example. And with planning and research, there are ways to take the emotion out of buying during volatile times.
To paraphrase billionaire investor Warren Buffett, the time to buy is when others are scared. Here’s how to create a buy-the-dip stock list:
Think long term
John Person, president of Persons Planet, which offers investor education and trading courses, says retirees should buy stocks thinking they’ll be held for at least three to five years. A longer-term mindset can ease any initial buyer’s remorse if prices fluctuate, which will inevitably happen when markets are volatile.
For the buy-and-hold investor, they prefer to hold stocks that have a good chance of longevity: mature companies have good brands and products, strong earnings and good prospects.
Simon Erickson, CEO of 7investing, a stock picking and advisory service, says it’s not enough to just look at a stock’s current valuations, go back in history to see how the company has evolved. Every quarter, he looks at valuation multiples to see how the company compares to itself. A number of websites, such as Morningstar or Yahoo Finance, offer at-a-glance valuation breakdowns and may also list historical data. This allows investors to track how quickly sales and profits are growing or operating margins are improving.
But valuations can contract because the stock price drops for a reason unrelated to the company’s business model, such as a market sell-off, Erickson notes. “There is a lot of noise and short-term emotions in the market that influence prices. If you’re a long-term investor and the fundamentals of the business are good, this is an opportunity for you to join,” he says.
Another reason to think long term is that the circumstances causing the current volatility will not last forever. Markets are currently volatile due to macroeconomic factors including high inflation and geopolitical unrest, and this is affecting the prospects of many high-growth tech companies that were on many dream shopping lists, says Chief Investment Officer Michael Rosen of Angeles Investments. .
“You may have liked the stock when it was 20% or 30% higher, but maybe it was a different environment,” he says.
Nobody says that with the Federal Reserve likely to raise short-term interest rates multiple times this year to fight inflation, it may be worth looking into the consumer staples sector for companies that could better overcome the risks of recession. Pharmacy chain
Walgreens Boot Alliance (ticker: WBA) remains off its 2022 peak and pays a 4% dividend. One person says buying clothes could be seen as a luxury if the economy goes into recession, but some segments may do better than others, such as discount retailer TJ Maxx, whose parent company
TJX) is also outside of its 2022 lows.
Do your research
Beyond looking at historical valuation metrics, research why the stock has fallen. Was there a sell-off in the market like there was in January and the stock was caught up or was there a fundamental reason?
Erickson says a company with good fundamentals that fell in the early 2022 sell-off was
tractor supply (TSCO), a retail chain that sells farm supplies and other rural lifestyle products. It fell 20%, but announced on its February earnings call a 77% increase in the dividend and repurchased $2 billion in shares. Since then, he has recouped some losses.
Often, however, stocks go down for a reason. Erickson says he shares
Metaplatforms (FB), Facebook’s parent company, is changing its pricing because the company’s personalized advertising business model is being challenged by industry changes to privacy. Companies like
Apple (AAPL) and
Alphabet (GOOGL) is committed to preventing advertisers from tracking users across browsers and apps. Facebook recently said the changes could lead to $10 billion in lost sales in 2022.
Rosen and Person also say that technical chart analysis, which is the study of price patterns, offers historical guidance for retirees who are still doing their research. The charts offer a visualization of the price trend whether it is up, down or in a holding pattern. Using simple technical indicators such as 90 or 200 day moving averages can also highlight trends.
Weekly charts spanning 24 months will show where current prices stand overall, and investors should note how well a stock is doing relative to the lows or highs, Person says.
According to experts, the key to avoiding heartburn in these markets is to move slowly and have a plan, especially if an investor is buying a particular stock for the first time. Start by assigning a budget or a fixed amount to spend, then decide when to buy. The easiest way is to automate purchases on a monthly basis, although more tactical retirees can increase their purchases, i.e. buy small increments ahead of major forecasted news events or use charts. prices to inform their decisions.
To make tactical purchases, Person suggests an investor look to Fed meetings this year, which are expected to impact markets. Tactical retirees with stock picks can buy a small amount now and see how the market reacts to Fed rate decisions. For someone with a budget of $1,000, he can spend a third of that on his preferred stocks and save the rest to buy later to see how the markets digest the monetary policy news.
Retirees who automate shopping for a particular day of the month may want to avoid using the 1st and 15thand of the month since that’s when most institutions make pension contributions in the market and can lead to slight price increases, Person says. He notes that looking at price charts for the past two years, markets have tended to dip in the third week of the month. “Rather than join when everyone else is buying, maybe buy when the pros are making a small profit,” he says.
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