401(k) losses? Get your money back

Talk about lousy timing. After stocks have already fallen off the cliff, plunging 48.5% since peaking in late 2007, 401(k) investors are just starting to run for cover. In October, plan participants moved $776 million from equities into fixed-income assets, reports Hewitt Associates - one of the highest transfer levels ever. Meanwhile, the percentage of assets in stocks dropped five points to 54%, which is the lowest equity allocation in more than 20 years.

Fear of falling markets is understandable, but shifting entirely out of stocks would be a colossal mistake. Despite the market's meltdown, equities remain the only asset with enough growth potential to help you recoup your losses reasonably quickly and stay ahead of inflation longer term. Switch to all bonds now and, at the recent rate of 3.75% on 10-year Treasuries, you'll need about 12 years to make your money back (this assumes you started 2008 with a portfolio split 70/30 between stocks and bonds).

Moreover, given today's beaten-down prices, the prospects of earning above-average returns on stocks over the next market cycle look pretty good. By contrast, an all-fixed-income portfolio will generate much less income than a stock-bond blend when you're ready to retire.

NEXT: Fine-tune your asset mix