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It has been a rough few weeks in the market, and nothing creates a bull market in investment advice like market turbulence. It seems like every morning brings, along with a fresh round of gut-wrenching news about bailouts and bank disasters and commodity price jolts, a fresh round of "what to do with your 401(k)" stories from the major media.

The thing is, many of the "advisors" driving these stories bring their own biases and predilections to the table, and that means there's a lot of odd and conflicting advice out there. In the past few days, I've taken in a whole bunch of these advice stories, in both local and national media. I've heard some great ideas and some crazy ones, and I've tried to sort through the pile to get to some simple rules of thumb.

Here's my take on the best approach to this mess for those who are at least seven to 10 years from retirement. (I'll follow up with thoughts for those approaching or in retirement in a separate article.)

Things to do

  • Do remember that bear markets, even scary churning bear markets where everyone's fear levels seem fixed at near-panic levels, are a normal feature of our markets. They've happened before, they'll happen again, and this too shall pass -- in all likelihood, long before it's time for you and me to retire. There's no reason for us to panic, even if the pros are.
  • Do remember that the most apocalyptic predictions you see in the media are unlikely to come to pass. Apocalyptic predictions seem to be a feature of bear market periods -- some experts believe that a spike in doomsaying is a sign that the bottom is nigh, and yes, some people try to track this sort of thing. You and I are best served by shrugging it off.
  • (If all else fails and you can't escape the feeling that the Second Great Depression is upon us, do remember that even during the original much-ballyhooed Depression, most of the economy recovered after seven years or so. No economic condition is permanent.)
  • Do be somewhat conservative with new investments -- but do keep investing. I've been saying that this is a great time to pick up dividend-paying blue chips, the kinds of stocks you can hold for decades. I'll totally understand if you want to avoid JPMorgan Chase (NYSE: JPM  ) , Goldman Sachs (NYSE: GS  ) , or Bank of New York Mellon (NYSE: BK  ) for a while. But I think stocks like Pfizer (NYSE: PFE  ) and Automatic Data Processing (NYSE: ADP  ) -- which are both somewhat recession-resistant, pay good dividends, and are likely to be around for the long haul -- are worth a look at these prices, as are beaten-up stalwarts like Starbucks (Nasdaq: SBUX  ) and American Express (NYSE: AXP  ) , both of which I bought recently.
  • Do keep contributing to your 401(k), do keep dollar-cost averaging into long-term investments like index funds, and do keep the long term in mind.

The list of don'ts
What fun is a list of Dos without a list of Don'ts?

  • Don't completely bail out of stocks. Dial down your risk level if you must, but remember that market turnarounds tend to be sudden and sharp -- you don't want to be chasing that train when it comes.
  • At the same time, don't be too aggressive with smaller growth stocks unless the argument for them is really, really compelling -- and takes economic uncertainty into account. Forward earnings projections, never worth putting much faith in, are particularly worthless in the face of an extended period of economic turmoil.
  • Don't try to rebalance your portfolio right now. I heard an investment advisor on a local radio station suggest rebalancing at the height of the volatility last week. That seems like a bad idea to me. Rebalancing involves selling investments that have gone up and buying more of those that have gone down. In a highly volatile market, that seems likely to be frustrating at best -- and possibly a very bad idea.
  • Don't hold your employer's stock. This isn't a good idea any time, but it's a particularly bad one now. If your company hits the skids and you get laid off, that's bad, but at least your 401(k) will be OK -- unless it's built around the same company. Diversify your risks, both in your portfolio and with the rest of your finances.

And most importantly ...
Don't panic. Panic leads folks to make all kinds of bad decisions. Now is an excellent time to skip the business section of the paper, turn off CNBC, and go for a walk or something instead. The market's story will unfold whether we're paying attention to it or not.

Read our Rule Your Retirement newsletter service, and you'll find plenty of ideas for making the most of the bear market. Our full issue archive and other valuable resources are all included with a 30-day free trial. 

Fool contributor John Rosevear owns shares of American Express and Starbucks. Pfizer and JPMorgan Chase are Motley Fool Income Investor recommendations. Starbucks, Pfizer, and American Express are Inside Value recommendations. Starbucks is a Stock Advisor selection. The Fool owns shares of Starbucks and American Express. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (13) | Recommend This Article (36)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 23, 2008, at 3:43 PM, KenNJ2008 wrote:

    You recommend ADP as an investment oppurtunity. You also advise NOT to invest in your own company's stock. Should an employee of ADP own stock in the company?

  • Report this Comment On September 23, 2008, at 4:57 PM, dcorley wrote:

    Is it just me, or does anybody else get tired of all of the whine.

    You all will be OK as long as you don't panic.

    Hold on to your stuff.

    If you want to make sure you lose money, sell.

    Warren Buffet didn't make money selling on the dips. Or major panics.

    Stop whining.

  • Report this Comment On September 24, 2008, at 8:27 AM, vest0r2 wrote:

    Do the math. Get out while you still have something left.

  • Report this Comment On September 24, 2008, at 11:41 AM, TMFMarlowe wrote:

    KenNJ2008, no. I named ADP in the article because it was a good one that happened to come to mind. There are others. If you want something similar, you could do a CAPS screen for five-star large-caps with dividends and use the resulting list as a starting point for research. You'll find good alternatives, maybe even better choices.

    dcorley, wise words.

    - John

  • Report this Comment On September 26, 2008, at 5:50 PM, Ocalanne wrote:

    Anxiously await your follow up article for those near or at retirement. After the dizzy roller coaster ride of past few months, today I could stand it no longer and pulled my matured, but declining, IRA annuity to stop the hemorrage. (Dropped from 90K to 74K in 10 months.) The remainder is now resting (safely?) in an IRA CD until the storm passes and dust settles. Am retiring in November. Any suggestions?

  • Report this Comment On September 27, 2008, at 6:45 AM, ktrase001 wrote:

    I would love to see an article about 401K that actually relate to mutual funds. Showing stock picks in a 401K article is senseless (and aggravating) since you can't pick those selections, you can only pick mutual funds that are weighted one way or another toward small, med, large, international etc...and none have bear market options. With 7 years to retirement protecting huge losses seems to be key but everyone advises riding out the storm...but there is no place to ride it out in most 401K's except to move it into some form of cash account (if they have one). With this years loss most 7-10 year plans for retirement are gone....they are now 14+ years of continued work. Wish there was a Cramer for 401Ks!!! Sincerly...Someone who will have to work till death

  • Report this Comment On September 27, 2008, at 9:53 AM, vwbridge wrote:

    Anxiously awaiting your thoughts for those nearing or already in retirement. I am a teacher, hoping to retire in June.

  • Report this Comment On September 27, 2008, at 2:03 PM, malcadam wrote:

    Same here. Look for Fool comments on mutuals, Me - 50% large cap (Alger, Janus etc.) 50% in international and emerging markets but holding tight with these in 301k(sic) for now. New money going into large cap stocks thru 401k brokerage link a/c to build an HDP holding to draw on @ 70 (10 years).


  • Report this Comment On September 28, 2008, at 11:09 AM, jlclayton wrote:

    ktrase001, an article about stock picking for a 401k is just as relevant for many of us because our company offers a plan where we can completely pick all of our own stocks, not just mutual funds. So we do appreciate the advice.

  • Report this Comment On October 06, 2008, at 11:53 AM, TMFMarlowe wrote:

    Those of you looking for good advice specific to the funds likely to be found in 401(k) plans should check out the new issue of Rule Your Retirement. This isn't just a sales pitch -- it's the best place to look for detailed info on that topic. You can try it free for 30 days with no obligation -- I encourage you to check it out.

    John Rosevear

  • Report this Comment On October 07, 2008, at 10:24 AM, WildWillieFool wrote:

    I wish I had read your advice before I invested in Pilgrim's Pride Corp (PPC), for whom I worked until the company closed down my plant in May. Then, the stock was trading at about $38.50, and my stock was worth $675. Now, the price is down to $2.34, and I have little choice but to hang in there and hope it goes up and that the company doesn't choose bankruptcy, which has been discussed. For my 401k, I haven't even checked, but it has NO PPC stock in it, and that's not by mistake! I won't join a company stock purchase plan again.

  • Report this Comment On April 14, 2009, at 3:58 PM, daquimo wrote:
  • Report this Comment On August 26, 2009, at 2:05 PM, riaz09 wrote:
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