However, the best and most likely scenario is one in which the U.S. muddles through the next five years while deleveraging. "While this scenario is nothing to get excited about," Gray says. "It's also not Armageddon."

Richie Lee, whose Dallas-based firm manages about $835 million, says he expects the next three to five years to be much like the late 1970s.

"I'm thinking we're going to see sawtooth markets because no one is entirely sure about what is going on," says Lee. To manage the expected volatility, he says he is looking for managers with a different set of skills than he sought in the past.

Lee says that in a bull market, stocks rise about 80% of the time and decline just 20% of the time. In bear markets, he says, stocks are as likely to go up in a given day as they are to drop, and while index funds worked in the long-term bull market, managing money in a secular bear market is entirely different. Index funds have lost money in the past ten years.

Instead, Lee is seeking managers of mutual funds and hedge funds that have a track record of success while being agile. "You need to populate portfolios with managers who will maneuver in this market," he says.

He cites First Pacific Advisors' Crescent Fund as an example. He says manager Steve Romick, who also handles separate accounts, has shown returns of about 10% annually over the past decade even as markets lost about 1% a year. The fund employs a contrarian style that looks at a company's private market value rather than its value within its peer group, and it will invest anywhere in the capital structure of a company-in stock, bonds, preferred shares or convertible bonds.

Another example, Lee says, is PIMCO's All Asset Fund in which manager Robert Arnott shifts among a wide range of asset classes by investing in about 40 PIMCO mutual funds. After the financial crisis in October 2008, Arnott took advantage of historically low valuations in emerging market debt and in junk bonds, which paid off for the fund.

But Lee's outlook is not bright. He says it will take five to ten years to break "the entitlement structure" of the U.S. economy, but he is unsure how the country will work its way through the deleveraging crisis. He believes the American mind-set will undergo a dramatic change as deleveraging slowly causes economic pain in the form of dashed retirement hopes.

People will make up for shortfalls in retirement savings by working longer, and the concept of retirement will be rethought, with more people staying in the workforce into their late 60s and early 70s, he says. Americans will place less emphasis on material values and more on family values, Lee says, as deflation and changes in technology make vacations and entertainment less costly.

"People will have to adjust to the economic reality," he says. "It means a change in lifestyle. But I think the American people can accept this more than most people realize."

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