Worried about the current market downturn? Here's what to consider before buying the dip
The crypto market can be volatile, but it's still attractive to young people who have "higher risk appetites," said Chris Adam of SharpRank.

There's no doubt that there's a lot at hand contributing to the market's latest downward slide: 40-year-high inflation, rising interest rates, global economic uncertainty, war in Europe, an ongoing pandemic and now worries about a potential recession. The recent surge of market volatility has us all on our toes, leaving new and seasoned investors alike wondering what to do with their money when their investments tank. Historical data from the American Association of Individual Investors (AAII) Sentiment Survey index shows that while the second half of 2021 saw a lot more bullish investors than bearish investors, sentiment has flopped and there are now way more bearish investors than bullish. If you're wondering what should be your next move in a market downturn, we got some advice from a market risk expert. "Hopefully, you lightened up when things were getting frothy and you have some dry powder with which to start nibbling at current bargains," investing and market risk expert Richard Smith, CEO of investing tool RiskSmith, tells Select. "In general, you should be selling into irrational exuberance and buying into irrational pessimism." To put it another way, Smith echoes conventional investing wisdom that suggests selling when everyone else is buying and buying when everyone else is selling. "Right now, sentiment is at historic levels of bearishness," he adds.

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What to consider before buying the dip

Investors taking advantage of the latest market swings and buying the dip, however, should do so with caution. Buying stocks at a discount and holding for long periods of time is a common strategy, but it could be risky given it's tough to determine if the market will keep falling. Stocks could tumble even more and there's the risk of an impending recession. "'Buying the dip' depends upon your timeframe," Smith says. "If you can keep your money in the markets for at least a couple of years, this is a good dip to buy. If you're banking on the market reversing [soon] and heading back up to new highs, you'll likely be disappointed." Crypto investors should especially proceed with caution. Smith suggests that any investments in this "very volatile asset" should be small and should be with a mindset of holding for five to ten years. Money that you need within the next year is certainly not to be invested and is best put in a safe savings vehicle, such as a high-yield savings account. We like the Marcus by Goldman Sachs High Yield Online Savings for offering an above-average interest rate, no fees whatsoever and easy mobile access. It's the most straightforward savings account to use when all you want to do is grow your money with zero conditions attached. And if you're earmarking funds for a certain goal, such as a future vacation or down payment on a home, consider the Ally Online Savings Account that allows users to organize their saving goals by creating up to 10 different "buckets" within the same savings account.

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Minimum balance None

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Ally Bank Savings Account Learn More Ally Bank is a Member FDIC. Annual Percentage Yield (APY) 4.25% APY

Minimum balance None

Monthly fee None

Maximum transactions Unlimited withdrawals or transfers per statement cycle

Excessive transactions fee $10 per transaction

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Terms apply. Read our Ally Bank Savings Account review.

When you're ready to buy the dip

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Robinhood Learn More Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum required to open an account or to start investing

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Bottom line

The unrest in the markets is definitely unsettling, but market volatility is normal and expected. At the end of the day, investing is a long game and history has shown us that riding it out typically pays off. While stocks plunging means you can buy them more cheaply, be careful when entering the market during turmoil. Catch up on Select's in-depth coverage of personal finance, tech and tools, wellness and more, and follow us on Facebook, Instagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.