Date: October 25, 2021

Why Low Prices Can be a Good Thing: Investment Advisor in Gilbert Explains

Falling stock prices are widely viewed as a bad thing, and as a general investor, it’s understandable to fear the worst. Low prices can be a negative signal for a stock’s future value, or even the smoke to a market crash’s fire. However, as an investment advisor in Gilbert, AZ, we know that when stock prices fall, you may just find a great investment opportunity.

Investing can be hard on the heart, but there’s no need to panic. Instead, it’s important to do your research. At Watts Gwilliam and Company, we want to help you understand some of the merits of falling prices, and what you can do to capitalize on them.

You Can Buy More for Less

One of the most obvious benefits of low prices is being able to buy more shares of an investment for less money. Some stocks can be very expensive, but when stock prices fall, you can acquire them for less.

If a stock is experiencing a short-term price decrease, acquiring the shares for less money can be a great opportunity for you to earn dividends and make greater long-term gains if the stock price increases. At lower prices, you can also acquire more shares than you could have at higher prices, and this strategy can help increase your total investment and grow your earnings potential. Plus, you can acquire a number of other investments for better diversification.

Investment management for high net worth individuals can be even more difficult. Don’t be afraid to ask questions!


Worried about the stock market? Schedule a no-obligation conversation with the team at Watts Gwilliam and Company to see how we can help.


Easier Diversification

A diversified portfolio is your cushion for when markets become volatile, or risky. By not putting all your investment eggs in one basket, you can protect your overall portfolio if the market gets choppy. Over time, even if you’re an aggressive investor, you can benefit from a diversified portfolio. Falling investment prices can be an especially good opportunity to further diversify.

When stock prices fall, your portfolio mix will naturally change. The market is made up of hundreds of different investments that fall into different categories. These categories, like domestic large-cap stocks, small-cap international stocks, alternative investments and bonds, don’t move in the same direction. Some go up in value, while others go down. This is where diversification can help you. If you lose money on one investment, there’s a good chance a different investment you own is maintaining its value or making gains.

Falling prices can also be a signal that it’s time to review your allocation.

For example, say your investment strategy requires that 50 percent of your portfolio is invested in stocks. If your stock allocation falls to 40 or 45 percent after a market decline, you’ll need to rebalance. To do so, you may need to purchase more stocks to bring your allocation back up to the portfolio strategy’s required level. Not only are you following your portfolio plan properly, but you’re also buying “low,” putting yourself in a position for future gains.

What type of investor are you and what is the right balance for your portfolio? Talk with an investment advisor to find a strategy that works for you.

Don’t Panic!

Watching your portfolio lose value on paper can be stressful. It is for us too! But understanding the market and how it works can put your mind at ease. What can past markets tell us? Is it really time to panic? What’s the difference between short-term downward movements and a long-run market decline?

Market volatility is constant, but it can be tough to experience. In uncertain times, remember your purpose for investing. Taking time to revisit your goals and the big picture long-term can help prevent you from reacting. If you’re having trouble doing so, lean on the experience of an investment advisor you trust. At Watts Gwilliam and Company, we’ve talked to too many investors who panic and sell. This can lock in losses and make it much harder to buy back into the market. A more prudent strategy may be to redistribute your assets to fit your portfolio model or look at alternative investments you may not fully understand on your own.

Money is emotional, even for the steadiest of hearts. Making wise decisions when emotions are high can be especially challenging. Don’t make a rash decision. Even seemingly simple mistakes can have long-lasting effects. Talk to an investment advisor and get an outside, independent, educated opinion first!

DIY Misconceptions and Investment Mistakes

As you can see, falling prices aren’t always a bad thing, but they can be! While low prices can be a great opportunity to purchase some stocks, others may actually be losing value. As an investment advisor in Gilbert, Arizona who helps investors nationwide, we’ve seen how not understanding the market and stock values can lead to some costly investment mistakes.

Underperforming Vs. Undervalued

It’s very important to spot the difference between an undervalued investment and one that is truly underperforming. The difference is in its underlying fundamentals. A stock that is undervalued can show solid profits, low debt and increasing revenues, but its price may not increase like it should. This could be the making of an undervalued stock, which still has opportunity in the long-run.

On the other hand, if a stock’s price is increasing mostly out of popularity, with no underlying statistics about its profitability, this could be a trap. Many DIY investors buy a stock thinking they acquired it at a low price, when they actually bought an underperforming stock, and “caught a falling knife.”

Sometimes, a stock’s price is a good representation of its value. Other times, it’s a sign that it’s undervalued. Make sure to look underneath the hood, if you will, to determine an investment’s true value.

Look Closely at Low Prices

If you see what appears to be a good price for an investment, you may be onto something. Just be sure to do your homework before jumping into an investment. Don’t be afraid to ask for professional advice. Again, one seemingly small move can have a big impact on your future. Investment loss as you near retirement can be especially difficult to recover. If you have any questions, let’s talk! A no-obligation conversation can make a big difference!

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David Watts

Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.