Updated: May 3, 2013 12:14PM
Originally published: July 8, 2002
We start this July 4th holiday celebration with a renewed patriotism. Flags are flying, bands are marching, and Americans have a deeper sense of pride and emotion about our country.
We stand for freedom and opportunity. Terrorists cannot destroy our determination to build--and rebuild. We can and will defend our country from attack by those who don’t understand and respect our values.
But can we, and will we, defend our country against attack from within? From attacks that directly hit at the faith and confidence on which our free markets are built?
The attack from within
Now we learn that a surprisingly large number of corporate executives and professionals have attacked our system from within. And the market is showing the effects.
By destroying the public’s trust in the credibility of corporate profits and by undermining our faith that the reported numbers are accurate, they attack the very marketplace that functions to raise capital and keep our economy growing.
If investors, here and abroad, think our markets are rigged to favor insiders, who would be foolish enough to invest their money here? Already the value of the dollar shrinks along with the Dow.
Even if you didn’t own shares of companies involved in scandals, you’ll feel an impact on your own financial situation resulting from the personal dishonesty of our corporate leaders.
We’ve seen the impact of unethical behavior on the stock market. Suddenly there’s an aversion to investing your hard-earned money in a game that’s viewed as dominated by insiders. Stock prices continue to fall, as buyers turn their backs on what only two years ago was viewed as the greatest wealth-creating opportunity of all time.
If that attitude continues, it will have a huge impact on your retirement funds. Lower stock prices mean lower investment returns--and that means you’ll have to save more to have sufficient money in your retirement.
This is not an argument for getting out of the market entirely. Only if you completely lose faith in the future of the American free-enterprise system would you give up on the stock market. But a period of lower returns means you must increase your monthly investments--so you can profit whenever the upside returns.
And you need to do a reality check on your time horizon. Long-term means at least 20 years. Dreams of overnight riches were only that: dreams. And dreams of an early retirement have been buried in the same gravesite. Plan to work longer, as well as contribute more.
But don’t stop planning.
It’s part of the American genetic makeup: We always look forward. Perhaps it’s because we don’t have as long a past as Europe and Asia. Asians and Europeans may have more respect for history, but we have a greater belief that things can be changed and improved. That’s the lesson of our American history.
We’ve always met challenges and surmounted them. We’ve been attacked before and met the challenge with resolution. We’ve fought wars before, and our country and markets eventually came out stronger.
And we’ve had our confidence in our free-market system shaken before. The aftermath of the 1929 stock market crash revealed market manipulations that we hoped were eliminated by the Securities and Exchange Act of 1934, along with other reforms that seemingly worked well for more than half a century.
Now we may need new reforms, or more stringent application of the laws that already exist. We need to send a message that convicted criminals will serve jail time. But it would be a real mistake to give up on our free-enterprise system and the capital markets that make economic growth possible.
On this July 4th holiday, let’s send a patriotic message: We will defend our system. Those who try to destroy it--from without or within--will pay the price.
That’s the way to honor our country. And that’s the Savage Truth.
Terry Savage is a registered investment adviser and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail to email@example.com.