Ramit Sethi: Here’s Why You Should Save vs. Invest During Market Downswings
Written by
Gabrielle Olya
Edited by
Molly Sullivan
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During market downswings, some investors try to take advantage by “buying the dip.”
“‘Should I invest extra in the stock market right now?’ A lot of people say this in my comments and they’re just waiting, kind of expecting me to start applauding them,” said money expert Ramit Sethi in a recent Instagram post.
However, Sethi doesn’t think that investing extra during market downswings is always advisable, and that many people should be saving that money instead — here’s why.
Why Ramit Sethi Isn’t a Fan of ‘Buying the Dip’
Buying extra stock when prices are low might seem like a savvy move, but Sethi doesn’t see it this way.
“You’re just timing the market,” he said. “You just happen to be buying instead of selling, but you are a market timer and that’s not a good move.”
Sethi said that to understand why this is, we need a bit more context.
“First off, we don’t know what the market’s going to do tomorrow,” he said. “It could go up 15%. In that case, great. It could go down — not so great for you as a market timer. That’s why market timing is not a great move.”
Instead, Sethi recommends investing a consistent amount in regular intervals.
“The best move for investments is just set it up so automatically, every single month, your money goes in regardless of what’s happening with the market,” he said. “That is how real investment is done.”
This Market Dip Isn’t an Exceptional Time To Buy
Although stocks prices have declined, Sethi notes that if you look at long-term data, the savings are not actually that great.
“Even though the market has gone down — and it has gone down significantly thanks to these stupid tariffs — if you look at the overall chart from the last 15 years, it’s not a particularly huge amazing deal,” he said. “So I want you to put that into context.”
Saving Is the Better Move for Many People
While it’s tempting to invest more when prices are low, Sethi said that for many people, putting that extra money toward savings is the better move.
“What if you take that extra $5,000 you have sitting in your savings account right now and put in the market, and then you get laid off three months from now?” he asked. “That extra money you make 30 years from now is going to be insignificant compared to the value it would have had in an emergency fund — so don’t try to over-optimize. That money is worth a lot in a savings account right now.”
The general rule of thumb is to keep three to six months’ worth of living expenses in a savings account to serve as an emergency fund, but very few Americans have that much.
A recent GOBankingRates study found that half of Americans have less than $500 in savings, with 39% having $250 or less in savings. Only 25% have $2,000 or more in a savings account. That’s why for the majority of Americans, saving is typically the wiser choice than investing right now.
“If you have your savings account maxed out, go for it [and invest],” Sethi said. “Do what you want. But don’t be a market timer in general.”
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Sources
- Ramit Sethi, Instagram
