It's fair to say that both ASX shares and stock markets around the world are currently experiencing a dip, to put it very mildly. Since its last peak on 14 February, the S&P/ASX 200 Index (ASX: XJO) is down by more than 14%, including the horrid 4.23% slump we saw yesterday.
That puts the ASX 200 in firm 'correction' territory. It's even worse in some other markets. For example, the United States' Nasdaq Composite Index (NASDAQ: .IXIC) has now fallen more than 22% from its December peak, putting it in a technical bear market.
Many investors, used to seeing stock markets just going 'up and to the right', might find this experience very distressing, and understandably so. But others might be excited at the thought of finally being able to buy ASX shares and exchange-traded funds (ETFs) on the cheap. After all, it's been many years since we've seen such widespread panic in the markets.
So, if you're one of those Warren Buffett-inspired investors who like to 'be greedy when others are fearful', should you focus on buying ASX shares or ETFs?
Should we buy ASX shares or ETFs in this market dip?
Well, there's no easy, simple answer to that question that will suit everyone. It really comes down to the investing strategy that you are already using.
If you're someone who is fully invested in ETFs or index funds and dollar-cost averages in your investments regularly, then the only thing to do in times like this is to stick to your strategy. It's important to keep money flowing into your portfolio in these types of circumstances. It may feel dangerous. But the reality is that you are buying more of the assets that you always have been, just at cheaper prices. It may even be worth finding some extra cash to throw in if you can make that happen.
But what about if one was fully invested in ASX shares? Well, again, if you employ a dollar-cost averaging strategy, you can keep calm and carry on, perhaps prioritising investments in the shares that you think are most oversold or undervalued. If you don't use a dollar-cost averaging strategy, you can either hold tight or else sell some of your shares. But only do this if you have a better idea of what to do with the cash. By better idea, I mean another oversold share, not leaving your cash in your brokerage account 'until things improve'.
Risks and rewards
For someone who holds both ETFs and individual ASX shares and has some cash on the sidelines in the event of a market crash, you have some potentially tough choices to make.
If you're a conservative investor who has a portfolio of defensive blue-chip shares, let's say Woolworths Group Ltd (ASX: WOW) or Telstra Group Ltd (ASX: TLS), but also uses a broad-market ETF like the Vanguard Australian Shares Index ETF (ASX: VAS), you would have seen your ETF fall by far more than your Woolies or Telstra shares. If that's the case, you might wish to put any additional investments into the ETF. That way, you can capitalise on the lower prices currently being offered.
But let's say you're an investor who has a portfolio of growth shares or ETFs. Perhaps your largest investments are REA Group Ltd (ASX: REA) and Xero Ltd (ASX: XRO), as well as an index fund. You've probably seen your share prices fall by more than the broader market. As such, you might want to consider doubling down on your stock investments instead of your index fund.
I'm buying ASX shares
Again, it all depends on your personal strategy. But a good rule of thumb to use if you're wondering what to buy is to work out the investment with the largest potential return (falling stock and ETF prices boost potential returns), balancing that with the risk you are willing to accept, of course.
Personally, my investing portfolio includes both ETFs and individual ASX shares. I usually invest in ETFs if I have cash to spare and have no compelling stock-buying opportunities. That is not the case right now. As such, I have been (and will be) focusing my buying on the individual stocks that look like the best value for me.
However, at the end of the day, if you are buying anything, stock or ETF, during this market dip, you've got the right idea.
