How low can it go? That question continues to haunt investors as the stock markets hit lows not seen in years. As of Feb. 20, the Dow Jones industrial index of 30 blue-chip stocks was off 16 percent year-to-date and 48 percent from its October 2007 high.

For some investors _ professional and amateur alike _ the steep declines spell opportunity. Others are content to sit on the sidelines until they see signs of recovery.

Steve Latham of Minnetonka, Minn., is in the first camp. “For people who are not affected by the downturn, this a great time to buy stocks cheap.” Latham, a financial services firm employee, hasn’t changed his lifestyle or his investments.

But Mary Rollins of Plymouth, Minn., lost her job at lender GMAC more than two years ago. “I’m trying to be optimistic,” said Rollins, who now works as a software developer. “But we’ve changed our 401(k) to more conservative investments.”

Being optimistic can be tough in what Greg Zandlo, a Coon Rapids, Minn.-based certified financial planner calls a “mini Depression” _ both economically and psychologically.

“The end of the champagne diet, beer salary is at hand in the sense that people can’t keep living high on the hog,” he said. The wealth effect that many Americans felt thanks to home appreciation and stock market returns is gone and it will take a long time to build that wealth back. Zandlo predicts the days of 8 to 12 percent annual stock market returns will be replaced by lower, single-digit returns that will last at least five years, maybe more.

So he’s telling clients to stay out of the market and put money in cash, stable value funds, or short-term bond funds. “You just squirrel away your nuts; opportunities will be there down the road,” he said.

James Paulsen, chief investment strategist for Wells Capital Management, is sticking with his belief that there are some “wonderful” opportunities in the stock market. He can pick positive signs out of the vortex of negative news. For example, he’s encouraged that stocks aren’t trading at abnormal volume levels, which suggests that “a lot of sellers have already sold even though we’re retesting the bottom and scaring the hell out of ourselves about banks.”

Speaking of which, Paulsen wishes politicians and pundits would keep their mouths shut about the economy. December was the best month for stocks since the Troubled Assets Relief Program (TARP) was announced, “because it was the one month where leaders and policy officials didn’t do anything. … I think leaders and policy officials might want to take note of December and perhaps remember that the Number 1 rule of public service is ‘first do no harm,'” Paulsen said.

The market reacted negatively to President Obama’s signing of the $787 billion stimulus and didn’t budge with the announcement of his $75 billion mortgage plan.

Researchers at the Leuthold Group in Minneapolis rely on hundreds of technical indicators to determine the stock market’s direction. The group’s Major Trend Index has been bullish for months. Doug Ramsey, Leuthold’s research director, said research shows stocks are attractively priced for the first time in 25 years. He is confident that investors buying stocks today will be rewarded with annualized returns of 10 to 15 percent over the next decade or so.

“But that doesn’t preclude another down 20 to 25 percent from here in the next three to six months,” he cautioned.

If the Standard and Poor’s 500 Index falls below its November 2008 closing low of 752, Leuthold mutual fund managers will override the positive-leaning major trend index, lowering the firm’s exposure to stocks from 60 percent to 50 percent.

Ramsey suggests investors hedge similarly by figuring out the lowest percentage of their portfolio they’d have invested in stocks, and the highest amount, and then allocating no more than three-quarters of the highest amount to stocks. As for which stocks look good, Ramsey thinks foreign stocks are more attractively priced. Of the 45 countries he studies, the United States is the fifth most expensive market. Small caps and growth stocks are also attractive, as are stocks of biotechnology companies. “But the key point is all of them are cheap,” he said.

Cheap or not, Bob Markman of Markman Capital Management in Edina, Minn., thinks individual investors should be out of the market.

“The financial industrial complex has hoodwinked investors so much to think that they have got to ‘stay the course,’ they’ve got to ‘buy and hold,’ no matter what the pain is.”

The place to invest today, he says, is not in his equity mutual funds, but in high-quality corporate bonds and cash. “If you’re out of the market and the bull market starts, what have you lost? You get back in. But what if you stay in and you’re wrong?”

copyright 2009 McClatchy-Tribune Information Services