Published: Friday, 11 Sep 2009 | 11:10 AM ET

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Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street’s big downturn. Their portfolio is off by 25 percent. They are mindful of their spending. And their dreams of buying land in Northern California or Oregon have been delayed five to 10 years, until they can rebuild their retirement accounts.

Yet with no guarantee they will ever be made whole again, individual investors like the Canups, who live in Oakland, Calif., are sticking with the stock market. Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments. They have even stopped tossing unopened 401(k) statements into a filing cabinet. “This time last year it was doom and gloom and dire,” said Ms. Canup, 48, who works for the health care provider Kaiser Permanente. “I’m kind of amazed that we’re able to get back in as quickly as we are.”

When the financial crisis hit, some of Wall Street’s prophets warned that individual investors would be lost for years. The gospel of building a diversified portfolio, buying regularly and holding on till retirement, appeared dead. But despite a rout that erased fortunes and upended retirement plans, few smaller investors have folded their portfolios or cashed out: While they are poorer today and still leery of the markets’ returns, many are still chasing the gilded promise of profits and wealth. “It’s got a track record,” Linda Blay, a bookkeeper in Orange County, Calif., said of the stock market. While her portfolio is still off by 30 percent, she said that “it outperforms any investment. I think it’ll come back.”

Participation in 401(k) plans held steady in 2008, even as the average account lost 28 percent of its value, according to Hewitt Associates

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[HEW  Loading...      ()   ], which tracks retirement plans. More people moved their money into cash or bonds for safety, but they did so at the margins. Over all, the contribution rate dropped less than half a percentage point.

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And in the first half of 2009, when stocks hit their worst levels and then pivoted higher, only 9 percent of investors made trades in their 401(k) accounts, according to Vanguard. At the same time, alternative investments like real estate have suffered mightily, while interest rates on certificates of deposit or even high-yield savings accounts have plunged, making them less attractive. “Inertia has really ruled,” said Pamela Hess, director of retirement research at Hewitt. “The vast majority of participants have changed nothing — not if they save, not how much they save. Nothing.”

Now, some of the money that fled stocks for safe harbors like money-market funds and government bonds last year is beginning to return. Even with trillions still sheltered on the sidelines, some $56 billion has poured into equity funds since April, according to the Investment Company Institute.

Of course, making money again can do a lot to bolster anybody’s confidence.

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Over all, the average Vanguard 401(k) balance grew by $3,300 through the end of June, up about 6 percent for the year — not a great return, but better than before, according to the firm’s most recent numbers. In the first six months of 2008, the average Vanguard account lost $6,898, or nearly 9 percent, of its value.

As of Thursday the Standard & Poor’s 500-stock index was up about 10 percent for the year. But the index is still down a third from its peak, and investors are uncertain whether stocks will continue to rise in a fitful recovery hampered by high unemployment and sluggish consumer spending. Even with 10 percent annual returns, it would take typical stock investors close to three years to recoup the funds they had at the beginning of 2008.

Daniel Kelhoffer, 67, an investor in Georgia, visited his son in Germany this summer and cruised the lake near his house in his wooden 1959 Chris-Craft motorboat, encouraged by the steady rise in his monthly account statements. Joseph Fredrick, an investor in Cincinnati, exulted that, largely because of his financial adviser, his portfolio had fallen only 12 percent since the market tanked.

In North Carolina, a retired Wachovia executive, Robert Paynter, lost tens of thousands of dollars when his stock options and Wachovia shares hit the skids. In October, he told The New York Times that he felt as if he were witnessing his own death with each plunge of the stock market. This summer, he bought a year-old Corvette convertible. And while he and his wife canceled a trip to Europe, they are contemplating a Mediterranean cruise next year. “I’m feeling a whole lot better,” he said. “As ugly as it got, I never got to a point where I thought I was going to have to go back to work or miss a meal. I can take a lot bigger hit than I thought I could.”

After the crash, Gil Livingston, a retired Hewlett-Packard

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[HPQ  Loading...      ()   ] manager from suburban Detroit, decided he would manage his own money instead of letting asset managers at UBS handle his portfolio. He missed the bottom of the market in early March, but has made money from well-timed purchases of technology stocks and investments in emerging markets. “I’m slowly sticking my head back out of the ground,” he said. “I’m doing fairly well. My equities are up.”

Mr. Livingston, 67, and his wife still have a winter home in Cape Canaveral, Fla., and say they have not been forced to curtail their lifestyles. With their portfolio off by 20 percent, though, they have put off traveling and are considering whether to raise some cash by trading in their Michigan home for something smaller.

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But many are more deeply scarred from the financial and psychological effects of their losses.

Last autumn, as his retirement account was plummeting in value, Joe Mancini decided to sell some financial stocks and seek more conservative investments like bonds, gold and metals funds. Even though he was able to cut his losses, he and his wife are still down about 30 percent. “A few years ago I was hoping to retire when I got close to 60,” said Mr. Mancini, who is 58 and works for an electronics equipment distributor. “I can’t even put a date on it now.”

If thriftier consumers become a legacy of the recession, Wall Street’s plunge may have created a generation of more cautious individual investors.

Robert Furey, who works at a computer company in Naples, Fla., said he had followed all of the conventional rules of investing: he planned for the future, bought a diverse array of stocks, bonds and index funds and never tried to time the markets. He lost a decade’s worth of gains when the stock market plunged, and said he did not know whether he would ever trust the markets again. “I was a deer in the headlights,” he said.

As Wall Street raced higher in the last few years, Ben Silbert, 38, a corporate lawyer in Manhattan, said he tried to talk his wife into funneling more of their money into stocks. But now, with their portfolio down 15 percent since last August, Mr. Silbert said he wanted to make a shift toward fixed-income investments. “I’ve seen what can happen,” he said. “It’s been a good lesson. It’s been an eye opener for me.”

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