When following the average down strategy, investors consider two factors when deciding whether to purchase additional shares of a stock that’s falling in price. They add more to a good position when prices are relatively cheaper but they may be compounding a losing position. Should they buy the dip?
Key Takeaways
- Averaging down is a strategy to buy more of an asset as its price falls, resulting in a lower overall average purchase price.
- Averaging down is sometimes known as buying the dip.
- Adding more shares increases risk exposure.
- Inexperienced investors may be unable to differentiate between a value and a warning sign when share prices drop.
What Is Averaging Down?
Buying more shares at a lower price than an investor previously…
