Some of my employees have started to panic because of the losses in their 401k. While I am precluded from advising specifically, I do advise that they consider a 20/ 20 rule.

If they have less than $20,000 in their account or if they are at least 20 years from retirement, do not worry. Those with little money may see a sharp percentage drop but it will matter little in actual dollars. It will be more than offset by the continuous flow of dollars into their account buying stocks while the market is cheap.

If fact I contend that the best scenario that could happen to a young investor with only a few thousand dollars in his or her account is a sharp drop in the market and a gradual recovery allowing them to buy on the cheap.

The worst possible action would be to stop participating in the 401k plan or reduce the funding of the account. Such a course would not reverse the current loss and would eliminate the chance of participating in a recovery.

Your 401k is the best place to have fixed income investments since the interest is tax protected. Stocks should generate long term capital gains and already have a preferable income treatment that is largely wasted in the structure of a 401k. It would likewise be foolish to buy a tax free municipal bond to put in a 401k.

If your account is all equities I would recommend some portion in fixed income. The current financial meltdown has humbled many accounts that relied too much on equities.