Should You Invest More Right Now, While Stocks Are Down?
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Should you invest more right now, while stocks are down? It’s a fair question, and the data gives a clearer answer than you might expect, so we’ll lay it out. Here’s the part worth staying for, though: the investors who handle days like this best don’t decide on the day. They wrote a rule for adding cash months ago, and Thursday just told them which line of it to follow. We’ll come back to that with a rule you can write this weekend.
“Decide the price you would happily pay, before the market offers it.” – Anonymous
What Does Everyone Already Know?
That Thursday was rough. The S&P 500 fund SPY fell from $766.81 to $733.00, and the Nasdaq-100 fund QQQ fell 6.5%. Dividend funds fell much less: SCHD lost 2.2% and DGRO 2.8%. It was the AI trade unwinding: the chip makers and the companies building the power and data centers behind AI fell hardest. The worry has been building for weeks. Power is the bottleneck, opposition to new data centers is growing town by town, and the new Congress can lean on both; on Wednesday, Meta’s president told a Wall Street Journal conference that the midterm results will make building data centers harder. We flagged power as the AI trade’s real risk on Nov 2, in Nvidia Stock’s Real Risk Isn’t China. It’s Power.
And everyone knows the old line: buy when there’s blood in the streets. The question is whether the record backs it up, and how soon.
So, Should You Buy More Now?
Here’s the honest answer, in two parts. We looked at every day since the end of 2002 when the S&P 500 fell at least 3.5% and the Nasdaq Composite at least 5% on the same day. There were 21 before Thursday. We go through all of them in what happened the last 21 times the Nasdaq fell 5% in a day. For the S&P 500, price only:
| After the 21 days | Result |
|---|---|
| Higher 1 week later | 10 of 21 |
| Lower close within 3 months | 20 of 21 |
| Median further fall | about −10% |
| Higher 12 months later | 20 of 21, median +27% |
| Higher 5 years later | 18 of 18 |
The year has favored buyers. The next three months almost always offered a cheaper price first.
Over a year, buying after days like this has worked. The worst twelve months in the table was a 4.1% loss, after September 29, 2008.
Over the next few weeks, you’d very likely have seen a lower price. In 20 of the 21 cases, the S&P 500 closed below that day’s level at some point in the next three months. The median further fall was about 10%, and the worst, again after September 29, 2008, was 32%.
So if you’re asking “is now a good time over the next year?”, history leans yes. If you’re asking “is today the low?”, history leans no.
All At Once, Or In Pieces?
Those two answers pull in different directions, so we tested both. For each of the 21 days, we compared putting a sum in the S&P 500 at that day’s close against splitting it into three equal parts: one that day, one a month later and one two months later. Then we measured both a year after the first day:
| Approach | Median, 1 year | Worst, 1 year | Did better |
|---|---|---|---|
| All at once | +27% | −4% | 13 of 21 |
| Three monthly parts | +23% | +9% | 8 of 21 |
All at once usually won. Three parts never lost money a year later.
That’s the real trade, in numbers. Going all in did better about 6 times in 10, because the market usually recovered fast, as it did in 2020 when the third part bought far higher than the first. Splitting it up gave up about 4 points at the median and in return took the worst outcome from a loss to a 9% gain. After September 29, 2008, the three parts bought in at an average price about 12% below that day’s close. Which one fits you depends on which mistake you’d rather live with: missing some of a fast rally, or watching a lump sum fall a third.
Does That Hold For Smaller Dips Too?
Yes, and the pattern is the same. The Trefis SPY page tracks every time since 2005 that the fund fell 5% or more within 60 trading days. There were 18. Buying at the moment the dip reached 5%, the median best gain within the next year was 16%, but the median worst point within that year was 8.4% below the buy price.
In plain words: a dip buyer usually ended up ahead, and usually had to sit through a lower low on the way. If buying more today would leave you unable to stomach an 8% to 10% paper loss next month, that tells you how much to buy, not whether.
How Long Did The Big Falls Take To Heal?
The 21 days are about one-day shocks. The bigger risk for new money is that Thursday is the start of a long fall. Here are SPY’s six biggest falls since 2007, with dividends counted, and how long it took to get back to the old high:
| Fall | Drop | Bottom | Back to peak |
|---|---|---|---|
| 2007-09 | −55% | Mar 2009 | Aug 2012 |
| 2011 | −19% | Oct 2011 | Feb 2012 |
| 2018 | −19% | Dec 2018 | Apr 2019 |
| 2020 | −34% | Mar 2020 | Aug 2020 |
| 2022 | −24% | Oct 2022 | Dec 2023 |
| 2025 | −19% | Apr 2025 | Jun 2025 |
Five of the six healed within about 15 months of the bottom. The one that didn’t took three and a half years.
That’s why the cash rule matters more than the timing rule. A long-run investor can sit through a 2022. Someone who needs the money in 2027 may not be able to sit through a 2008.
Are Stocks Cheap After Thursday?
Here’s what the pros are actually checking, and it’s less comforting. Compare what the S&P 500 earns for you, its earnings yield (from the Trefis SPY page), with what a 10-year Treasury pays. That gap is the extra return you’re promised for taking stock-market risk:
| Year | Earnings yield minus 10-yr Treasury |
|---|---|
| 2021 | +2.61 points |
| 2022 | +1.34 |
| 2023 | +0.31 |
| 2024 | −0.81 |
| 2025 | −0.60 |
| Now, at Thursday’s close | −0.56 (4.28% vs 4.84%) |
Even after Thursday, stocks earn about half a point less than a Treasury pays. One bad day doesn’t change that much.
Thursday’s 4.4% drop lifted the earnings yield to about 4.3%, still below the 4.84% 10-year yield that day. In 2021 the gap was above 2.5 points. On next year’s expected earnings, it is about +0.50 points. So stocks are cheaper than a week ago, but not cheap. That isn’t a reason to stay out: the S&P 500 was higher five years after every one of the 18 measurable big down days. It is a reason to add in pieces rather than all at once, and to keep your near-term money in Treasuries, which now pay about half a point more than stocks earn.
What’s Your Rule For Adding Cash?
Pick one of these three, write it down, and you never have to decide on a red day again.
1. Dated tranches. Split the new cash into three equal parts and set the dates now: one this week, one in early December, one in early January. Say you have $300,000 to add: $100,000 on each date. That’s the “three monthly parts” row in our table: a little less upside at the median, no losing year in the 21 cases.
2. A buy price you commit to. Decide the price you’d be glad to pay and put it in writing. SPY 10% below Thursday’s close is about $660, and 20% below is about $586. The median further fall after the 21 days, about 10%, would have brought SPY to about $661. A rule might read: one third now, one third at $660 or on Dec 4, whichever comes first, the last third at $586 or on Jan 8. The date backstop matters: it stops you waiting forever for a price that may not come.
3. A rebalance band. If you already have a target mix, say 60% stocks and 40% bonds and cash, let the mix decide. Pick a band, say 5 points. Stocks would have to fall about 18% before a 60/40 mix drifts to 55% stocks and the band tells you to buy back to 60%. Until then, new cash goes in at your target split and nothing else changes. We set out the full one-page plan in will stocks rebound today, or do you have a plan?
What this replaces: putting everything in on Friday because it “always bounces,” or sitting in cash waiting for a bottom nobody can see. The risk: if stocks rally hard from here, tranches mean you pay more for the last two parts, as in 2020 and April 2025. That’s the cost of a rule that also works if the fall has further to run.
What Are The Pros Watching?
Not Friday’s open. They’re watching whether more days like Thursday follow in a cluster: 11 of the 21 came in 2008-09 and four in 2020, and clusters are when a rule earns its keep. They’re watching how much of the fall is in chip stocks versus the rest of the market. And they’re checking that the cash they’ll need in the next year or two isn’t in stocks at all, so a lower low can’t force a sale.
Buy by rule, not by feel. After the 21 earlier days like Thursday, the S&P 500 was higher a year later 20 times (median +27%), but it set a lower close within three months 20 times, a median of about 10% further down (price only). All at once beat three monthly parts 13 times in 21; the three parts never lost money a year later. At Thursday’s close the stocks-vs-bonds gap was about half a point in bonds’ favor (S&P 500 earnings yield vs the 10-year). Split new cash into dated tranches, tie each to a buy price, or let a rebalance band decide, and write it down this weekend.
What Should You Ask Next?
- How much Nvidia do you really own? Where the fall hit hardest, inside your index funds.
Follow this story with us: we’ll keep the precedent table current and come back to how a tranche rule would have done.
Do You Have A Rule For Your Next Dollar?
A written rule is the difference between a plan and a hunch. If you have $1 million or more invested, get a second opinion from a Trefis expert partner advisor in a free 15-minute call, or let Invest With Trefis build and run the plan for you.
For questions about this article or underlying research, email help@trefis.com.