Because the index always comes back after a decline, S&P TSX Index Funds are on sale today for a discount of at least 10 percent minus any fees. Over the last few weeks, after reaching a peak of 14,646 in July, the TSX Index has now dropped back to near 13,300 today. In the future, when this index recovers back up to the previous 14,646 level, this will be an increase of 1,346 points or 10 percent (1.1 * 13,300 = 14,630).
If market history teaches us anything...it is that the index will recover those points at some point in the future. It may take 2 months, 6 months, a year or longer but it will occur. Need, greed and fear guarantee it. The probabilities favour a shorter time frame for recovery.
We can't know when the low is reached, there may in fact be a much better sale price later on...in any event a net profit of perhaps 9.5 percent is available today for anyone who has the courage and funds to buy the dip.
This approach is not valid for individual stocks or for narrowly focused "stock picker" type mutual funds. Only the index fund comes with this 10 % guarantee.
When the 10 % increase occurs a number of stocks in the index will increase more than 10 % but we can't know which stocks they will be. More importantly, some stocks in the index will continue the downward trend or increase less than the 10 percent. Some stocks may never recover. An index fund guarantees average market performance in return for giving up the opportunity for "stock picking".
If I buy more index fund today I must accept the possibility that the index can go lower, perhaps much lower before I see my 9.5 percent profit at some time in the future. Part of the price I pay is having to live with the discomfort of watching my investment drop in the short term.