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Bumpy ride may not be over yet

Updated: May 3, 2013 12:14PM

Saved by the Fed. At least for now. If you heaved a sigh of relief that the Dow Jones industrial average closed down a mere 128.11 points Tuesday, you still have some thinking to do, because this market madness will happen again, sooner or later.

Probably sooner.

Traders around the world are still skeptical that even the Federal Reserve's deep reduction in a key interest rate cut will be enough to jump-start the slowing U.S. economy.

Even worse, if the Fed and Congress are too aggressive about putting more money into the hands of consumers, the fires of inflation could be rekindled.

Little noticed in Tuesday's market action, the price of gold for immediate delivery in fact inched higher to $882.80 an ounce -- a true barometer of global worries about future prices.

But the U.S. markets got off easy on Tuesday. And instead of heaving a sigh of relief, this moment becomes an opportunity for you to do some serious thinking about the risks of being in -- and not being in -- the stock market.

Here's a reminder of a key fact to give you perspective on your investments: Since the 1920s, there has never been a 20-year period where you would have lost money on a diversified portfolio of large company stocks with dividends reinvested -- even adjusted for inflation.

So if you have a 20-year time horizon until retirement -- or even during retirement -- you must keep a significant portion of your retirement investment in stocks. They'll help you keep up with inflation, and give you the potential for growth.

Here's one way to think about it:

??Will you feel worse if you sell now, and stock prices recover, surging to new highs in the coming years?

??Or will you feel worse if you fail to transfer some of your money to a safer investment (a money market alternative), and stock prices collapse further?

Consider one more alternative: Build up your savings outside your retirement plan by earning more, spending less, and paying down debt. Then you won't feel so vulnerable to stock market gyrations, and can make smarter long-term investment decisions.

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