How to Buy the 2025 Stock Market Dip in Five Easy Steps

Every day the markets plunge, nerves are tested, and big companies trade at even larger discounts than the day or week before. This selloff has made 2025 the worst start of the year for stocks since the 2020 crash. Unlike in 2020, a quick recovery might be unlikely. We may see a long 'correction' followed by an even longer bear market. Some overvalued stocks won't recover for a very long time. Dips are risky, but this is an opportunity to make a lot of money. To do this, there are five key steps we can take that I've described below.

From the outset, keep calm; don't act impulsively on emotion. It may be tempting to sell, and it will require nerve to not try and cut your losses. However, remember, if you're at the right point in your investing journey, you will have a long time to recover any losses. Your losses, like your gains, are not realised until you sell. So, unless you need the cash value of your portfolio, hold the line - do not sell - you missed the opportunity for a smooth exit!

It might also be tempting to throw all our spare cash into discounted stocks right now. Do not blow all the powder in the first moments of enemy contact; we don't know how long they'll keep coming or how long the onslaught will last. Take the stock market slump of the 2008 Great Recession. Coming off the peak of the 2007 high, the S&P500 index declined by 50% over 12 months. It then took until 2012 - five years - to recover.

If we are going to be in a decline for the long haul, we want to use this time to take full advantage of dollar-cost averaging. Drip feed money into the market over time. This strategy eliminates any need for 'timing the market' and it still allows us to buy a long dip.

S&P500 ETFs were trading at a 'discount' for 5 years during the period of the Great Recession

Buy what's reliable, don't try to be a hero. One comment I liked was that "buying these dips is like trying to catch a falling knife ... with buttered hands." Most of us are investing with limited sums of money, and while we'd like to take huge risks and pull off the best trade of this market downturn, there comes a point where one must realise "that probably won't be me." Picking individual companies, particularly tech companies go, for example picking the survivor of the Magnificent Seven or trying to identify the next set of tech winners, during such a turbulent period is highly risky. For those looking to try, beware that right now the odds are against you and there's a high chance you're going to get bloody. During corrections and crashes, our priority is to minimise risk and act strategically to prioritise long-run returns and limit volatility.

Once the dust has settled and a clear reversal is happening, picking individual companies becomes strategic. Right now, the problem is 'how to buy on the way down'. A useful guide when buying is to ask "is there a strong chance that in 5 years this asset will be worth at least the same as today's value?" For stocks, especially when a correction is taking place, you can't confidently answer that with 'yes' without undertaking a lot of research which may be wrong anyway. I propose we buy other assets instead.

From CNN, Global Market Indices on 31 March 2025

Specifically, build out your ETF positions. The odds that in 5-10 years the S&P500 index will still be on the way down is virtually zero. Compared to stocks, even in the best of times, after 5 years a given stock is only likely to have outperformed the market 36% of the time. ETFs allow you during this risky time to diversify and limit the risk you face. At the same time, you can still potentially outperform the S&P500 benchmark if you pick the right ETFs. For example, you have options including:

• Mid-cap ETFs - the S&P600 and S&P400, or the Russell 2000 have ETF trackers that can give you exposure to small and mid-cap companies. These often outperform the S&P500 over long periods.

• Financials - ETFs like the iShares U.S. Financials tracker can give you exposure to banks and financial services firms that will continue to be used and expand long after the tariffs.

• Other countries - riskier in an era of trade wars, however, if you want exposure to Europe and believe their companies can come out of this well, the STOXX 600 (European equivalent to the S&P500) returned an average of over 8% in the last five years; 6-7% in the last 25).

• ETFs tracking industries likely to be valuable in a decade. Cyber security in particular, like through the Legal and General Cyber Security ETF, is positioned to continue its outperforming streak once the dust settles and is currently selling at a 17% discount from its peak.

In sum, the no-nonsense strategy for buying the dip in the 2025 stock market downturn means doing the following:

1. Don't act impulsively (don't sell!)

2. Prepare for this dip to last a long time

3. Drip-feed your money into the market

4. Buy ETFs now

5. Wait until there is a clear reversal in the downward trend before buying individual stocks again