Please ensure Javascript is enabled for purposes of website accessibility

Bracing for a Double Dip

By Shannon Zimmerman - Updated Nov 11, 2016 at 3:51PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

We may not have touched bottom yet.

This year's volatility appears to have grounded a good many of Wall Street's big boys. In fact, companies such as Pfizer (NYSE: PFE), IBM (NYSE: IBM), and Coca-Cola (NYSE: KO) trade at levels well off their respective 52-week highs. PepsiCo (NYSE: PEP) and Hewlett-Packard (NYSE: HPQ) fit that profile, too, as do Oracle (Nasdaq: ORCL) and ConocoPhillips (NYSE: COP).

Appearances can be deceiving
I say "appears to" because there may be plenty of room for all of the above -- and the broader market in general -- to fall further. As anyone who lived through the bursting of the Internet bubble and the "tech wreck" of 2000 can tell you, market trends have a bad habit of persisting well past the point at which valuation reality would seem to provide a safety net. Just ask investors in S&P-tracking stalwart Vanguard 500 Index (VFINX). A loss of 9% in 2000 was followed by a 12% decline in 2001. Then in 2002, the fund shed more than 22% of its value.

So what are the options for investors contemplating the possibility of a market "double" or perhaps even a "triple" dip? Good question. Here are three possibilities.

1. Double down
Investors with a stomach for volatility and a lengthy timeline might consider plowing fresh dollars into their portfolio's brightest prospects. After all, if you've done your homework, Mr. Market's fire sales provide choice opportunities to snap up shares on the cheap, right?

Could be, yes -- but then again, maybe not. Even apparently bulletproof stocks can inflict further damage to a portfolio when the market refuses to behave rationally -- as it's been known to do on occasion. For that reason, doubling down isn't my preferred option during downturns.

2. Head for the hills
Pulling your money out of the market might seem to be the safest tack, but that can be a money-loser, too: Inflation will erode your purchasing power year-in and year-out. And of course, when the market resumes its upward trajectory, you'll miss out on that opportunity.

The bottom line: Playing it "safe" carries risk, too. With that in mind, I think savvy types should carefully consider this third option.

3. Automate your retirement prep
If you have an asset-allocation game plan in place -- a road map to your financial future built around your timeline and tolerance for risk -- downturns provide opportunities to take advantage of dips (and even double dips) through dollar-cost averaging. Doing so can smooth your ride to retirement bliss, but -- and here's the catch -- only if you've done your homework. Unless you've assembled a basket of securities into a carefully calibrated portfolio -- one that suits your risk tolerance and timeline -- you might be throwing good money after bad.

The Foolish final word
Bottom line: Dollar-cost averaging is only as effective as the vehicle you're sending your monthly moola to. And with thousands of funds, stocks, and exchange-traded funds (ETFs) vying for your hard-earned dollars -- and with most of 'em duds -- choosing well can sometimes seem like a needle-in-the-haystack exercise.

Not to worry. We've found the needles for you and threaded them through a service called Ready Made Millionaire. RMM features a compact, real-money portfolio -- the Fool has a million dollars on the line, in fact -- and it's designed for busy folks in search of a set-and-forget lineup they can use to feather their nest egg.

The service will reopen early next year, but to tide folks over until then, we're offering a special free report -- The 11-Minute Millionaire -- that highlights the three things you need to know before investing another dime in this market. Click here to learn more about Ready-Made Millionaire and snag your free copy of our report.

This article was originally published Aug. 14, 2007. It has been updated.

Shannon Zimmerman runs point on the Fool's Ready-Made Millionaire investment service. Pfizer is a Motley Fool Income Investor pick. Pfizer and Coca-Cola are Motley Fool Inside Value selections. The Fool owns shares of Pfizer. You can check out the Fool's strict disclosure policy right here.


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HP Inc. Stock Quote
HP Inc.
$34.22 (0.71%) $0.24
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$132.54 (0.79%) $1.04
The Coca-Cola Company Stock Quote
The Coca-Cola Company
$63.22 (-0.68%) $0.43
ConocoPhillips Stock Quote
$100.36 (4.56%) $4.38
Pepsico, Inc. Stock Quote
Pepsico, Inc.
$175.04 (-0.51%) $0.90
Pfizer Inc. Stock Quote
Pfizer Inc.
$48.29 (-3.32%) $-1.66
Oracle Corporation Stock Quote
Oracle Corporation
$77.16 (-0.49%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.