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You will survive this -- just don't try to compete with pros

Updated: May 3, 2013 12:14PM

Fasten your seat belts -- and your self discipline! The stock market is going for a wild ride, as global markets assess the impact of the United States' economic slowdown.

Investors around the world are worried that the Fed's timid rate cuts and the president's mini-rebate plan won't be enough to keep America's economy from sliding into recession.

Stock markets from Hong Kong to India to Germany to Canada plummeted during their Monday trading hours, and Asian markets fell sharply again overnight. An economic slowdown here translates into a business downturn there, because their economies depend largely on selling "stuff" to American consumers.

The Monday trading holiday in the U.S. markets may have provided a welcome buffer -- or simply served to create pent-up selling demand for U.S. stocks. Late Monday night, the S&P eMini futures that are traded on CME Globex indicated the U.S. markets would open sharply to the downside.

One thing is sure: In the first 13 trading days of 2008, the market has lost all its gains of last year, and then some. Since the Dow Jones made a new all-time high at 14,279 back on Oct. 11, 2007, the market has lost nearly 15 percent of its value.

What should you do?

Traders love volatility. They make a living trying to time the market moves. Professional money managers who run stock market mutual funds are paid to make both investment and timing decisions. But if you're just an investor in the stock market though your retirement account, you should not try to compete against the pros.

If you're years away from retirement and have a regular investment plan, stick with it. Knowing you'll never pick the absolute top or bottom should be comforting. And when the market declines, your monthly contribution will buy more shares of your fund.

Remember, there has never been a 20-year period (going back to the 1920s) when you would have lost money in a diversified, large company mutual fund with dividends reinvested. Sure, that's a long time horizon. But you'll continue to work for many years and also will need some investment growth during your retirement years.

Those closer to retirement should have already moved portions of their retirement investments to the most conservative choices. Remember that bonds can be as risky an alternative as stocks. If interest rates rise out of fears of inflation, bond prices fall. Only a money market fund will protect against losses, and it doesn't offer growth.

The big worry

In previous recessions or market declines, the Federal Reserve and the Congress could come to the rescue. Some say the Fed will make a large rate cut this week instead of next. And Congress will try to act quickly on its stimulus program.

But unlike previous economic slowdowns, the world is now our creditor -- holding all those dollars we've sent overseas to buy their products. If they sense the Fed is creating too much liquidity -- inflation -- they'll demand higher interest rates when they lend that money back to us by purchasing our debt.

America's choices are limited by the fact that we're in debt to the world. That makes our markets more vulnerable to global traders. But no one ever got rich betting against America over the long run. And it's never wise to sell into a selling panic. That's The Savage Truth.

Terry Savage is a registered investment adviser and Sun-Times columnist.

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