"What should I do?"

It's the question that's on every retirement investor's lips. The market is so wild, so unpredictable, so dangerous, that it's hard to come up with a strategy that doesn't seem outmoded in hours.

And if you've looked at your balances … yuck. My rollover IRA -- the bulk of my retirement savings -- lost almost 8% yesterday. It would have been even worse if I hadn't been holding a sizeable cash position. That wasn't a defensive play -- I sold my positions in Fidelity Latin America Fund and an EAFE index ETF a while back (lucky move, that) and have been slowly reinvesting the cash position in maybe-bargains like Bank of America (NYSE:BAC) and Under Armour (NYSE:UA).

I've got a list of stocks to check out and may buy a couple of other names today. But if you're looking at your 401(k), individual stocks probably aren't what are on your mind.

What mutual funds should I be holding?
Most 401(k) investors, looking at their balances and shuddering, are asking exactly that. What's the best you can do with a limited menu of options?

Unfortunately, every plan is different, so there's no one-size-fits all answer to give you. Some plans have 10 or 12 investment options, some have 50 or more. Some have Fidelity, some have Vanguard, some have T. Rowe Price or American Funds, some (most, these days) have a mix, and some have funds or fund families you may never have heard of before.

But here's some food for thought, along with rules of thumb to guide you toward good choices within what you have available.

The rules of thumb
Grab a soothing beverage and a list of your current investments, and open up a copy of your plan's investment options brochure. Ready? Here we go:

  • You may not need to do anything. Wow, that's anticlimactic, isn't it? If you've got a solid long-term diversification strategy and you're still several years from retirement, you may just choose to sit tight. If so, that's fine. Let me say that again: That's fine. Don't make changes to a sound long-term allocation just so you can tell your spouse or friends that you Did Something. But …
  • If you're mostly in index funds, review your other options. Index funds are great -- most of the time. But in rough markets, experienced managers -- even the ones who sometimes lag during bull markets -- often outperform the indices, just as an eagle-eyed veteran pilot might outperform the computerized autopilot as you fly through a storm. Look for stock funds that have at least average long-term performance and managers who have been on the job for awhile -- ideally 7-8 years or more, long enough to have come through the last bear market. If you find something good, consider a switch.
  • Be wary of the S&P 500. Yes, most investors will do fairly well in an S&P 500 index fund most of the time. But this isn't most of the time. Consider: The top holdings in any S&P 500 index fund include names like ExxonMobil (NYSE:XOM), AT&T (NYSE:T), and Microsoft (NASDAQ:MSFT). Those may be fine stocks, but they haven't done that well lately -- and none are likely to be among the fastest movers when the market's weather improves.
  • Look for value and think small. Value-fund managers, disciplined to look for very strong fundamentals in beaten-up sectors, are the eagle eyes I'd want in this market. And small-caps have historically made the biggest, strongest upward moves as past bear markets have ended. A fund like Fidelity Small-Cap Value, which counts CAPS favorites like Ingram Micro (NYSE:IM) and Superior Energy Services (NYSE:SPN) among its top holdings, seems like a strong choice right now. (You may not have that particular fund, but look for something similar.)

If you want more specific advice about the funds in your particular plan, I urge you to check out the Fool's Champion Funds newsletter. (Yes, it's a paid service, but 30 days of full access are free -- click with confidence.) Between the archives (almost five years' worth), the members-only discussion boards staffed by fund industry veterans, and the model portfolios that show you ideal asset allocation practices using the funds most commonly found in 401(k) plans, Champion Funds is an invaluable resource for those trying to make the most of a limited menu of funds. Try it right now -- there's no obligation to subscribe.

Fool contributor John Rosevear owns shares of Bank of America and Under Armour. The Fool owns shares of Under Armour, which is a Motley Fool Hidden Gems pick and a Motley Fool Rule Breakers pick. Bank of America is a Motley Fool Income Investor recommendation. Microsoft is a Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.