Dow 5,000?

It may be tough to remember amid the market's ongoing upheaval, but not too long ago, everyone was gaga over Dow 13,000 -- even me. Sure, it was just an arbitrary milestone, like observing your odometer as it rolls over to a fresh set of zeroes, but it was fun to watch anyway. And to the extent that the market's rise reflected investor optimism about corporate fundamentals and earnings, that 13,000 figure even had at least a bit of investing substance behind it.

Call it the best of both worlds.

Alas, what goes up ...
... usually comes down. Consider the meltdown that began in early 2000.

As you may painfully recall, the market tumbled hard then, and kept tumbling for quite a long time. Between March of that year and the close of 2002, the S&P-tracking SPDRs (SPY), whose top 25 holdings currently include Coca-Cola (NYSE: KO  ) and Chevron (NYSE: CVX  ) , declined by 34%. Meanwhile, the Cubes ETF (QQQQ) -- which tracks the Nasdaq 100 and counts Starbucks (Nasdaq: SBUX  ) , Apollo Group (Nasdaq: APOL  ) , and Activision Blizzard (Nasdaq: ATVI  ) among its top components -- shed some 77% of its value.

With those cautionary tales in mind, savvy investors should strive to ensure that their investments are spread intelligently across the market's valuation spectrum. Buttoned-down "value" stocks, for example, tend to hold up better than growth-oriented fare during downturns. During the period cited above, the Russell 1000 Value bogey, which specializes in the lower price-to-earnings likes of Bank of America (NYSE: BAC  ) and ConocoPhillips (NYSE: COP  ) , declined by "just" 14%.

Things are looking up
Meanwhile, some investors actually made money over that stretch. While I headed up Champion Funds, I recommended a fund that posted a gain of more than 28% while the aforementioned indexes were headed south. In other words, this fund played a mean defense, reaping plentiful rewards for that savvy strategy over time.

The Foolish bottom line
Contrarian that I am, I think a long, hard look at your own portfolio is a great way to celebrate any market milestone, or invest during pullbacks. Ensure that you have a well-diversified, comprehensive group of both funds and stocks to see you through bull and bear markets alike.

Sound interesting? You can snag a special free report – The 11-Minute Millionaire -- and learn more about the Fool's set-and-forget investment service, Ready-Made Millionaire. RMM features a high-octane ETF, a clutch of Grade-A mutual funds that span the globe (and the market's valuation spectrum), and four stocks that we believe are poised for outperformance over the next three to five years and beyond. We're so confident in our lineup that the Fool has plunked down a million of its own bucks on the portfolio. We'll open to new members in just a few short weeks. Just click here to learn more.

This is an updated version of an article first published April 24, 2007.

Shannon Zimmerman doesn't own any of the securities mentioned above. Activision and Starbucks are Motley Fool Stock Advisor recommendations. Coca-Cola and Starbucks are Inside Value choices. Bank of America is an Income Investor pick. The Motley Fool owns shares of Starbucks. You can check out the Fool's strict disclosure policy by clicking right here.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 792694, ~/Articles/ArticleHandler.aspx, 8/21/2014 2:46:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement