Before you do anything with your 401(k) plan, here are five basic rules:

1. Contribute as much as you can. You can't control the stock market. But you can control how much you contribute. The more you put in, the more you're likely to have when you retire. And never pass up free money: If your company matches your contributions, at least contribute enough to get the match.

2. Set a basic target allocation between stocks and bonds.  If you have 10 years or more before retirement, most of your money should be in stocks, which usually return more than bonds over the long haul. One rule of thumb: Subtract your age from 125. The remainder is the amount you should have in stocks. So if you're 50, you should have 75% of your assets in stocks, with the rest in bonds.

3. Rebalance periodically. Once a year, look at your portfolio and see what percentage is in stocks and bonds. If either stocks or bonds are 5 percentage points more than you want, then it's time to rebalance. Say you wanted 75% in stocks and 25% in bonds, but your portfolio is now 80% stocks, 20% bonds. Move money from your stock fund to your bond fund to get back to your original allocation.

4. Don't put more than 10% of your 401(k) account in company stock. You're already betting on your company's paycheck and its pension fund. You don't need to depend on your company stock for your retirement, too. And while company stock can drop to zero - ask any former Enron employee - it's doubtful that a stock mutual fund ever will.

5. Don't park all your savings in the plan's money market fund. You won't lose money in a money fund, but your returns will fall spectacularly short. Over the past 20 years, stock funds have gained an average 10.4% a year, compared with 4.5% for money market funds.

http://www.usatoday.com/money/perfi/funds/2006-10-05-401-k-main-usat_x.htm