According to the Hewitt 401(k) Index, in March, many investors moved their 401(k) money from stocks to bonds. (OK, from "equities" to "fixed income investments," if you want to get all fancy about it.) Unfortunately, that's one of the worst possible moves those investors could make.

Investors switched more money from stocks to bonds on 80% of the days in March, transferring a total of $864 million. For the entire first quarter of 2008, the net transfer was $2.8 billion. According to Hewitt, that's the largest quarterly outflow in its index's history.

Don't be alarmed, Fool -- or even surprised. The market has been wobbly lately, and when unsophisticated investors see big down days, they tend to panic. And when they join the herd in selling, they actually contribute to the same drop that spooked them to begin with.

Savvier investors know that a market slump is often the best time to buy. As Warren Buffett has advised, be fearful when others are greedy, and greedy when others are fearful.

It's also worrisome, not to mention frustrating, that employee discretionary contributions to stocks in 401(k)s dropped off in March. When the market is down, stocks are on sale. Investors should consider beefing up their contributions, not paring back.

Fortunately, Hewitt's April report showed a bit of reversal. Let's hope it continues.

Don't get caught up in the herd mentality. Learning more about investing can help keep you from selling at the wrong time.

Seek strong performers in your 401(k) funds, too, such as Fidelity Contrafund (FUND:FCNTX). It's closed to new investors, but you may be able to buy in through your 401(k). It sports an annual average return of 15.6% over the past five years, and a market-beating 8.6% over the past decade. Its top holdings recently included Disney (NYSE:DIS), Wells Fargo (NYSE:WFC), American Express (NYSE:AXP), and MasterCard (NYSE:MA).

Learn much more with our 401(k) guide and IRA Center. And for detailed guidance on retirement planning, try our Rule Your Retirement newsletter service free for 30 days. You'll get full access to all past issues, along with recommendations of promising stocks and mutual funds.