That being said, it is worrisome that so many people are still asking 'should I buy the dip now?'.
It tells me that there is still more room for a downside swoon that could potentially leave a whole generation of investors to swear off the markets entirely for a decade or more.
Frankly, I really hope that we don’t get there because it would be an absolute tragedy to see so many young people lose a decade of opportunity.
Now that you know how I see it, here’s how I would play it. Be mentally prepared for any new capital you put to work to fall another 50 per cent as far as it has fallen already.
The S&P 500 has fallen 20 per cent already. You should be mentally prepared for it to fall another 10 per cent again. The Nasdaq has fallen 30 per cent already so you should be mentally prepared for it to fall another 15 per cent.
Take the capital that you’ve got available to invest for two years or more and divide it up into five equal parts. Invest 1/5th of your investable capital once a month for the next 5 months.
I believe that following this strategy you can reasonably expect to earn rewards that are double or triple the risks you take.
If you invest in the S&P 500, for example, and expect to risk 10 per cent, then it's reasonable to expect that you could earn a 20 per cent to 30 per cent reward in the next two years.
Richard Smith is a Berkeley mathematician with a PhD in System Science. He is founder and chief executive of risk analytics platform RiskSmith.
