The Math Behind Buying Market Dips
When a market drops by X%, your extra dollars buy 1/(1−X) times as many shares as before. When the market recovers to its previous level, those extra shares generate a return of X/(1−X). A 20% dip → 25% return; a 30% dip → 43% return — all just from buying at the lower price and waiting for recovery.
Return by Correction Depth (at full recovery)
| Correction | Return at Recovery | Annualized (2-yr recovery) |
|---|---|---|
| 10% | 11.1% | 5.4% |
| 20% | 25.0% | 11.8% |
| 30% | 42.9% | 19.5% |
| 40% | 66.7% | 29.1% |
| 50% | 100.0% | 41.4% |
Best Practices for Dip Buying
Only invest money you won't need for several years. Dollar-cost averaging into the dip (buying in tranches as it falls, not all at once) reduces the risk of investing before the bottom. Index funds (S&P 500 ETFs) are safer for this strategy than individual stocks, as broad markets have always historically recovered.
FAQ
Timing the bottom is nearly impossible. A practical approach is to start buying when the market is down 10%, add more at 20%, and more at 30% — spreading your dip purchases without needing to predict the exact low.
Yes — the "portfolio value during correction" shows your existing holdings at the reduced price. The calculator correctly shows the total picture: your existing holdings fall, but your new purchases eventually recover to generate the extra gain.
※ Assumes full recovery to pre-correction levels. Past market recoveries do not guarantee future performance.