During the past 30 years of investing, Peter Recker never has been so dumbfounded by the stock market as he is now.

By most accounts, things should be better. Stocks, after all, tend to soar a year or so after the Federal Reserve cuts interest rates. And the economy is moving out of a recession into a recovery mode.

But Recker, a Livonia, Mich., retiree who once was a steady stock trader, is so miffed by the market’s moves that he hasn’t bought or sold much stock since January.

“I’m in a holding pattern, a state of confusion,” he said.

It is not just the economy that’s leaving investors wondering which way to turn. It is Enron. It is Kmart. It is a host of e-mails from a well-watched Merrill Lynch stock analyst who publicly wove dot-com dreams while he privately scoffed at the same stock’s silly prospects.

Main Street is losing faith in Wall Street. And while many still religiously invest in their 401(k) plans, they just don’t have the zest or confidence in the market that they used to have.

“Can you really trust earnings reports? Can you really trust analysts? The markets have been losing the perception of legitimacy or at least trustworthiness,” said J. Walker Smith, president of Yankelovich, a marketing and consulting firm in Chapel Hill, N.C.

Wall Street’s woes come on top of fears of terrorism and unending war. Investment guru Warren Buffett even warned that a nuclear attack in this country is “virtually a certainty.” He had no idea when, saying it could be in the near future or decades away. But Buffett’s words scared us, too.

Individual investors are asking: “Why in the heck would I want to invest in this market?” said Edward Eberle, president of Seizert Hershey & Co., an investment firm in Bloomfield Hills, Mich.

Look toward future

What’s tough at the moment is getting beyond the moment.

Yet to survive, investors need to look beyond any economic blips or news of financial skullduggery. Think about the long haul. Money still is being made in stocks. But investors cannot afford to put all their money on just one strategy, such as a technology comeback.

It is the message of diversification that financial planners are hammering home again and again, as a way to calm frayed nerves and get investors back on track.

One thing is clear after the market fallout: It did pay to hedge your bets. You’re probably more willing to sit it out and not make any rash moves if you didn’t refinance your home, take cash out and throw every extra dollar you had into the ultrahot technology stocks of the 1990s.

Consider if you had sworn by the all-growth, all-the-time strategy at the market’s peak in March 2000.

If you had invested $100,000 evenly in three tech-heavy Janus funds then the Janus fund, Janus Twenty and Janus Mercury you would have been left with only $61,780 as of May 2, according to a calculation by Morningstar Inc.

By contrast, you’d have $113,173 if you had spread the money among three very different funds and strategies the Janus fund, the Vanguard Total Bond Market Index and the T. Rowe Price Small-Cap Value.

Stocks

still make sense

Jeff Land, investment specialist for Charles Schwab in Novi, Mich., tells skittish investors that it’s essential to look at the overall portfolio and not dwell on a few money-losing pieces.

One investor, he says, cashed out about $20,000 in U.S. savings bonds last spring. To diversify out of a mostly-bonds portfolio, Land advised the man to put the $20,000 in a cornerstone of stocks, a Standard & Poor’s 500 index fund.

And the stock index fund fell about 16 percent in a year.

The man was upset and told Land that’s why he never liked stocks. Overall, though, the retiree was doing OK. His bonds gained about 7 percent. And the stock index loss was less than 1 percent of the entire portfolio.

“Could our timing have been better? Sure, it could have,” Land said. But over the long run, stocks still make sense for diversification, he said.

Bonds can lose value, too, especially when interest rates rise. Stocks, by contrast, can be a better hedge against inflation.

And many stocks have continued making gains gains that might go unnoticed if you only watch major stock indexes.

Between Sept. 21, the market’s bottom, and the May 8 rally, the median stock was up 25.1 percent. That’s based on a basket of 6,731 stocks tracked by Ned Davis Research in Venice, Fla.

By contrast, the Standard & Poor’s index was up 12.7 percent.

“Times like this are why you want to diversify,” said Sam Burns, research analyst for Ned Davis Research.

One can talk calmly about the comforts of diversification and careful stock picking. But many of us still find it tough to get our eyes off the ugly numbers. This is the worst market that many of today’s investors have ever lived through.

Bear expected to diminish

“After two years of this, emotionally people have just had it,” said Rebecca Sorensen, senior vice president of investments for UBS PaineWebber in Bloomfield Hills.

Trip Bosart, senior managing director for McDonald Investments in Birmingham, Mich., said in the past few weeks about six clients have phoned with every intention of selling all their stocks and going into cash or bonds.

“We then talked them out of it,” Bosart said.

Historically, stocks tend to make more money over the long run than bonds or cash. And brokers are advising investors that it’s important to invest in a wide range of styles. Most important, bad news doesn’t go on forever.

“In 2005 or 2006, you’ll look back and this will be a small blip in the 30-year chart of the market,” Bosart said.

Sorensen worries that people are too focused on the short-term turns of the Dow Jones Industrial Average. “To sell at this point makes no sense whatsoever,” she said.

As edgy as we are, though, many individual investors are sitting, not selling.

Bill McNabb, managing director for the institutional investor group for the Vanguard Group, notes that many 401(k) investors aren’t panicking. They don’t automatically see huge losses because they have continued to keep putting money away. So even though stocks might not be doing well, they’re still seeing pretty good sums on their 401(k) statements.

On the plus side, he notes that Vanguard is already seeing less money going into money market funds than a year ago.

What investors must realize to keep their sanity and their money is that stocks won’t perform miracles.

Brokers and other market watchers now say that investors should be looking for sensible annual gains of 7 percent or 8 percent in the years ahead. Not gains of 20 percent or more.

Jim Glennie, a retiree in Farmington, Mich., says he’s been selectively buying some stocks Ford Motor Co., General Electric Co., Cisco but is looking for a gradual comeback.

“It’s going to be a slower process,” said Glennie, 66. “The Enron thing hasn’t helped a whole lot. But in some ways it’s been a blessing.”

A blessing?

Glennie and some other market faithful say they see more hope for stocks if the Enron debacle cleans out bad accounting and business practices.

One day the bear is going to slink away. But he’s likely to trip over a few unsightly audits and accounting scandals along the way.