In-and-out online day traders and gloomy Wall Street pundits get all the attention, but the true heroes of this amazing bull market are (a) companies that keep reinventing themselves, cutting costs and developing new products to stay ahead of the competition, and (b) small investors who think long-term and refuse to panic in the face of whatever happens to be the scare du jour.

Recently, the scare has been inflation--despite the fact that gold has fallen to bathyspheric depths, trading at $258 an ounce last week (down more than 10 percent since the start of the year), and that most companies find it excruciatingly difficult to raise their prices.

Of course, even if inflation does rear its ugly head, it's doubtful that Alan Greenspan's Federal Reserve would allow it to crawl out of its hole. Yes, short-term interest rates should rise, but that event will be neither lasting nor so terrible.

Remember that inflation and interest rate scares--like war scares, impeachment scares and overvaluation scares--are simply opportunities for smart investors with horizons of 10 years-plus to buy more. Or at least to hold on. And that's what they have done.

There are several reasons that the Dow Jones industrial average has risen from 777 to well over 10,000 in less than 17 years--powerful earnings growth, the opening of global markets, sensible monetary and fiscal policies. But, in the book that Kevin Hassett and I have written, "Dow 36,000," we argue that the most important factor is the increasingly rational behavior of individual investors.

They have become less risk-averse, which is a fancy way of saying that they have become less scared of owning stocks. And they should be less scared, since stocks, over the long term, are no more risky than Treasury bonds--even though stocks have historically provided far higher returns.

So investors, less frightened and more rational, have bid up the prices of stocks, a process that is nowhere near finished.

One reason investors are less scared is that the institutions to which they entrusted their money have gained their confidence.

A threat to that confidence, since it can have effects that last for decades, is potentially more dangerous than the threat that the Federal Reserve Board will raise interest rates--a transitory phenomenon.

For that reason, I am troubled by anything that has even an outside chance to shake investors' faith, such as a recent proposal to relax Section 17(a) of the Investment Company Act of 1940, the legislation that set the rules for mutual funds. The regulation currently prohibits affiliates of a fund from selling stocks to that fund. It's a good rule. It stops, for example, a brokerage house from unloading tens of thousands of shares of an unloved company into a mutual fund it sponsors.

In a speech last month before the members of the Investment Company Institute, the mutual fund industry's trade association, Paul F. Roye, who heads the investment management division of the Securities and Exchange Commission, said that the proposal to change 17(a), now in the lap of Sen. Phil Gramm (R-Tex.), had "the potential to open the door to overreaching, self-dealing and other abusive practices that prompted enactment of the statute."

You don't need to be an expert in the intricacies of securities law to understand that stock prices could suffer if mutual fund shareholders, with more than $3 trillion invested, start getting skeptical of the motives of the people who manage their money.

Paranoid tales of manipulation of stock prices by Wall Street have noticeably declined in recent years, thanks to the candor and overall good practices promoted by Arthur Levitt Jr.'s SEC, by mutual funds and by investment firms in general. But that pleasant state of affairs could change quickly. If it does, expect the risk aversion of investors to increase, and stock prices to suffer.

In the meantime, one way to dampen your own risk aversion is by trying to construct a diversified portfolio whose returns won't bounce around so much from year to year.

In the current issue of his excellent newsletter, Retirement Watch (1-800-552-1152), Bob Carlson, who also chairs the board of trustees of the $1.6 billion Fairfax County supplemental retirement system, recommends stocks that are out of the mainstream of the large-cap growth universe, such as real estate investment trusts (REITs), which fell 18 percent between July 1, 1998, and March 31, 1999. Since then, they have rallied, but they're still far from their highs--and for no good reason.

Carlson likes Cohen & Steers Realty (1-800-437-9912), the largest REIT mutual fund. "As I've been saying for a while," he writes, "REITs are the best bargain in the investment markets. Most have growth rates that exceed earnings growth for much of the S&P 500 and are selling at tremendous discounts, and are likely to continue their growth rates for some time. . . . Of course, on top of these factors are high yields paid by REITs. Currently, Cohen & Steers pays a yield of between 4 percent and 5 percent."

Carlson also steers his readers to a mix of both aggressive funds and conservative funds. On the aggressive side, he recommends White Oak Growth (1-888-462-5386) and two Janus selections, Olympus and Mercury (1-800-525-8983). On the conservative side, he likes Oakmark Select (1-800-625-6275), Torray (1-800-443-3036), Dodge & Cox Stock (1-800-621-3979) and Lexington Corporate Leaders (1-800-526-0056).

And he urges: "Balance your portfolio with some small stocks. My top recommendations right now are Transamerica Premier Small Investor (1-800-892-7587) and Baron Small Cap (1-800-992-2766)." Three other small-cap funds on his list: Acorn USA (1-800-922-6769), Fasicano (1-800-848-6050) and Schroder U.S. Smaller Companies (1-800-344-8332).

Finally, it is worthwhile to consider well-run unit investment trusts (UITs)--which are diversified portfolios, like mutual funds, except that their assets (the stocks inside them) are fixed and the funds have set maturity dates (though you can usually roll your money into a new one).

Also, UITs tend to be much more concentrated (fewer stocks) than mutual funds. The drawback is that they carry high fees--typically, about 2.75 percent the first year and 1.75 percent for each subsequent year. But those costs may be cheap if a UIT can keep you from doing dumb things, like selling your stocks on the scare du jour.

An example of an attractive UIT for risk-averse investors is the Amex Institutional Portfolio, offered by Merrill Lynch & Co.

It starts with the Amex institutional index, which is composed of the 75 stocks most widely held among institutional portfolios with market values in excess of $100 million. Then, the 75 stocks are whittled down to 20, using a screening process that looks both at growth factors, such as momentum (how fast prices are rising), and value factors, such as low price-to-earnings ratios.

A new UIT is offered every six months, but a recent list included such stocks as America Online Inc. (AOL), Ford Motor Co. (F) and McDonald's Inc. (MCD).

You can buy UITs with other themes. For instance, many brokerage firms and financial advisers offer UITs packaged by such firms as John Nuveen & Co. in Chicago, whose portfolios include the 10 most admired companies in Fortune's annual survey, the Dogs of the Dow (10 highest-yielding stocks in the Dow Jones industrial average) and an e-commerce UIT of firms that benefit from the Internet revolution.

A big advantage of UITs is that most investors buy them and forget them. (You can sell a UIT before it matures, but prices are not quoted in the newspapers.) After all, the best way to keep your cool in volatile times is not to check how your investments are doing every day. Sometimes, ignorance can be profitable.

Correction: In my column of June 13, I said that Dreyfus's Premier Balanced fund (1-888-338-8084) carried no load, or upfront commission. In fact, only the retirement version (R) has no load. Loads for other versions of the fund range from 1 percent to 5.75 percent.

Glassman's e-mail address is; he welcomes comments but cannot answer all queries.