To Invest Amid the Tech Stock Sell-Off, Start With This Strategy

The stock market is having a tough 2022, and the tech sector is no exception. As of June 23, 2022, the Nasdaq Composite (NASDAQINDEX: ^IXIC) is down close to 30% YTD. Top tech giants like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN) have all seen losses well into the double-digit percentages this year, and the sell-off isn’t showing any signs of slowing down anytime soon.

If you’re looking to invest amid the tech sell-off, use this strategy.

Start with dollar-cost averaging

One thing that’s crucial for investors to do when sell-offs and market drops happen is to remove the emotions from their decision-making. Emotions drive a lot of money decisions, especially when you’re seemingly losing money. If you’re a long-term investor (which you should be), you don’t want to find yourself panic-selling, likely going against your long-term best interest. Instead, sell-offs are a time to use dollar-cost averaging and increase your position in some of your favorite stocks.

Dollar-cost averaging is setting a specific amount to invest and doing it at regular intervals, regardless of stock prices. You can invest $X weekly, $X bi-weekly, $X monthly, $X quarterly, or at whatever intervals you choose. The most important thing is that you set yourself on a specific schedule and stick to it. Having a set schedule and not considering stock prices removes emotions from your investing decisions.

During sell-offs and bear markets, it’s easy to convince yourself to pause your investing because you’re constantly seeing prices decline. After all, if you can get the same investments for cheaper at a later date, why not just wait until then, right? Theoretically, yes. But the problem is that nobody can predict what the stock market will do, and you don’t want to find yourself in a situation where you’re trying to guess where the “bottom” is. Markets could suddenly rise, and then you could find yourself paying more for stocks you could’ve gotten cheaper while waiting for them to keep declining.

You can use sell-offs to lower your cost basis

Another reason using dollar-cost averaging during sell-offs is a good investment strategy is that it can potentially help lower your cost basis. Your cost basis is the average price you’ve paid per share for a specific stock, and it essentially determines your overall profit (or losses) when you eventually sell your shares. For example, if you bought 20 shares at $50 each and then 10 more at $100 each, your cost basis would be $66.67 per share:

10 shares x $100 = $1,000
20 shares x $50 = $1,000
$2,000 / 30 shares = $66.67

You can see here that as prices decline during sell-offs, if you’re buying more shares of your favorite investments at lower prices than you’ve previously purchased them, you’re lowering your cost basis. That’ll mean more profit or smaller losses when you sell shares than if you’d invested an entire lump sum all at once.

Focus on the long term

Although there’s no guarantee that companies will bounce back from sell-offs, if you’re a long-term investor with time on your side, you should feel confident in the ability of great companies to weather the storm and be good investments in the long run. The only thing certain in the stock market is volatility; don’t let short-term trends distract you and have you making decisions that go against your long-term financial goals.

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