Sharpen Up Your 401(k)

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Financial advisor Alan Haft, who thinks international exposure should amount to only about 15% of a portfolio, suggests shifting some funds away from foreign markets that have outperformed over the past few years into sectors that have lagged behind the overall market, such as consumer staples, health care, and to some extent energy stocks.

The peril of not rebalancing is that gains become over exposed to a sudden downturn. Take the dot-com bubble. Investors who didn't shift some of their gains away from technology stocks saw their gains evaporate. "If you're in a well-diversified portfolio, they'll all be hot and cold at various times," Haft says.

4. Don't eat too much home cooking

Michael Scarborough, president of financial advisory the Scarborough Group, says too often employees pour too much of their investments into their own company's stock. This is especially the case for employees of companies that are household names. The employees think the omnipresence of their brands and their own belief in their work can make their company seem unbeatable.

Unfortunately, that's not the case. He points out that during the enormous gains of the late Nineties many components of the S&P 500 saw few gains even as the index itself advanced. And these were at least supposedly the cream of Corporate America. "We're not talking about mom-and-pop shops," he says. The worst example of 401(k) Kool-Aid: Those Enron employees that fully invested their retirement plans in shares of the failed energy trader.

5. Get—and stay—in the game

The most universal 401(k) tip, when the markets are strong and weak, is probably just to toss your hat in and give it a go. It's vital that in addition to holding a 401(k) that investors squeeze as much as possible from their employers' matching contributions. Even when finances are too tight to contribute the 401(k) maximum, it's always a smart to chip in as much as an employer will match.

Tom Foster of insurance outfit the Hartford's (HIG) Retirement plans group says not getting matching funds is "giving away free money." Since the principle of retirement savings is building up funds over time with the benefits of dividends and compound interest, not making a small infusion now neglects the possibility that a couple decades later that small sum could grow into a far larger one.

Halperin is a reporter for BusinessWeek.com in New York.