The stock market meltdown has unearthed lots of market fantasies--and deceptions.

One of the biggest is what you may have heard from family members or co-workers: "Oh, my 401(K) is only down 20%."

"Yes and I just saw Elvis ride past on a unicorn," says one of my analyst sources derisively.

We're all feeling it. All of our 401(k)s have been slammed. But where do we go from here?

One issue that is likely uppermost on your mind is this:

How are investors, who are losing millions of dollars, really going to get their money back in time for retirement? How is it possible that investors can not only regain what they've lost, but get their retirement accounts to grow in the future?  

Stop the Hemorrhaging

For one, I took my money out of Fidelity Investments. I grew sick and tired of its dangerously slow response to stopping the hemorrhaging in my account. I've got other money elsewhere, but I'd had it with Fidelity.

I grew tired of hearing the same refrain from them, that they were doing all they could to protect my balance. I got socked, and socked hard, by their seeming do-nothingness.

You may have found this out too, that even if you are active, even if you're trying to stay on top of the trades in your account, that big investment powerhouses like Fidelity fall terribly short. It went beyond putting my money into risky investments, even though I wanted lower risk trades, something I constantly had to monitor.

When I demanded that Fidelity move my money out once again at a market top last fall, for the umpteenth time I got the run around and instead a talk about the benefits of holding money in the market long-term, that that was the only way to make money. 

Fidelity's fidelity is to Fidelity, as it enjoyed the fees at my expense, fees that can caterpiller their way through any retirement account. The buy and hold crowd on Wall Street are now on my ninth nerve, the same crowd that tells you to stay in it while they trade their own personal books daily.

So Where Are We At, What Do We Do?

The Dow Jones Industrial Average is down about 45% since its peak in October 2007. The Dow has been trading below 9,000 since last October, a level it first passed in 1997.

In other words, investors who bought stock more than a decade ago have no capital gains to show for it, only dividends (and yields have been low throughout).

Americans' net worth fell in 2008, erasing four years of gains, as the value of their houses and stock market portfolios declined, according to new data from the Federal Reserve. The net worth of American households was $51.5 tn, down $11.2 tn, or 18%, fm 2007. That decline marks the first drop in American household net worth since 2002.

More than 90 mn Americans own stocks through mutual funds and 401K plans. When the markets cracked last year, Americans pulled a net $320 bn fm mutual funds, many in their 401K plans. These investors, like me, shifted into cash, plowing a net $422 bn into money market funds during the year.

We've seen six bear market rallies in the last 18 months, each sparking cheers that a recovery is around the corner, when none arose.

However, the markets have been in this advance-retreat, advance-retreat mode for decades.

The Dow closed above 1,000 in 1972, only to fall to 616 by the end of '74. A rally in 1975 took the average to 852, but it then gained only a net 23 pts over the next six years. The Dow then climbed from 803 in the summer of 1982 to 14,165 in the fall of 2007. 

Currently the Dow Jones Industrial Index has risen by 21% since March 9, just crossing the traditional 20% threshold. The previous Dow rally started after the November 2008 rescue of Citigroup, lasted until the New Year and came a mere 0.8 %age points short of qualifying as a bull market--before yielding to a 28% rout.

The current anemic rally, a bear market rally based on thin average daily volume, has largely been a vote of confidence in the US banking system rescue, which comes with massive taxpayer help.

In the Weeds

We'll be in the weeds here until 2010 or even 2011. The global downward economic momentum remains strong. The International Monetary Fund doesn't expect growth to return until 2010. While waiting, profits are going to be stung.

U.S. companies will start reporting results for the first quarter in the next two weeks. Analysts, who have overestimated profits for every period since the third quarter of 2007, expect S&P 500 earnings to drop 36% on average, paced by retailers, automakers and semiconductor suppliers.

Analysts are forecasting S&P 500 companies won't halt the longest streak of declining earnings since at least 1947 until the fourth quarter of this year.

But that might be optimistic too, as it all depends on the government successfully applying the paddles to the banking system. Whether the government has averted the crisis remains to be seen.

The $11 tn and counting that the government has deployed to stop the crisis has been farmed out under the assumption that it is easier to put out the fire in the first five minutes than to let the flames spread. We shall see

Suss Out Your Annual Costs

If you retire with a portfolio of $1 million and plan on withdrawing 5% a year to live on, that means you're expecting to live off of an annual income of $50,000, says Amanda B. Kish, certified financial analyst, and one of the sharper minds out there when it comes to 401(k) planning.

But if the bear market has chopped your portfolio down to just $700,000, Kish says "you've either got to up your withdrawal rate to 7% to get that same $50,000, or make do on just $35,000 a year to avoid drawing down any more on your principal."

Kish adds: "Increasing your withdrawal rate by even a small amount can drastically shorten your portfolio's life span." Plus, "going from a 5% annual withdrawal to a 7% rate means that your retirement savings could run out nine years earlier!"

Kish says it's important that "you plan on retiring in the near future, make sure you're aware of how the bear market can affect your odds of outliving your savings. If you can put off retirement for a bit longer, or make do with smaller dollar-amount withdrawals for a few years, you should seriously consider it.

Not Retiring Yet?

Say you've got a few years to retire, or maybe a dozen or more.

If you can afford it, max out your contributions now. That money will compound over many years, and you'll be buying low, meaning, the market is a heck of a lot cheaper than it was a year ago, so every investment dollar can buy more stock in potentially decent companies. Picking them of course is key-look for those with clean balance sheets and lots of cash on their books (see below).

Kish points out that a study performed by University of Michigan finance professor H. Nejat Seyhun "found that, from 1926 to 2004, 95% of the total dollar returns in the stock market were earned in just 5.1% of the months in that time frame." That's a small window of opportunity, but no one can market time it right to catch it.   

Avoid Your Company's Stock

The Enron, Adelphia, WorldCom, and now Citigroup, AIG, Fannie Mae and Freddie Mac, as well as GM, provide an important object lesson-don't sink a lot of your 401(k) money into your company's stock, you'll get wiped out. Yes perhaps a small slug of its shares, but not all of your account should be in your own company's stock.  

Look for Recession-Resistant Winners

Kish likes consumer service companies such as PepsiCo (PEP) or Kimberly Clark (KMB).

And she likes midsized health-care companies who may catch the baby boom retirement trend, names like Covidien (COV), Celera (CRA), and Beckman Coulter (BEC). Plus stable dividend payers such as Abbott Labs (ABT) and Consolidated Edison (ED) she says are also worth a look.

Watch Out for Losing the Match

Big companies are following smaller companies in this alarming trend: Suspending their 401(k) contributions. FedEx just did it, and cuts may be in store at other companies. Consulting firm Watson Wyatt Worldwide says one out of 10 employers already has cut or plans to slash the match-that's up from 6% in September 2008.

You can boost your own contributions to make up for the reduction if your employer cuts your match. Most financial pros say you should contribute at least 10% to 15% of your salary to build a strong nest egg-that includes both your contribution and your boss's share.

The maximum you can contribute to a 401(k) this year is $16,500. Workers age 50 or older can contribute an additional $5,500.

Watch Out For Fees.

Many companies' plan managers don't even show the total fees as a percentage sum for their plans. Your statement ought to show that percentage. Most 401(k)s are focused on mutual funds, which typically have an expense ratio of around 1.02% compared to 0.58%.for exchange-traded funds, or ETFs.

You may want to check out exchange-traded funds, which carry the lowest expense ratio of all investment fund, plus they provide easy diversification and potentially lower risk.

And try to find a good index tracking fund, which tracks the broader market. Rep. George Miller, (D-Calif.), chairman of the House Education and Labor Committee, is seeking backers for his legislation that would force 401(k) plans to offer at least one index fund.

Cash is King

Which companies have a lot of cash on the books and strong balance sheets?


Cash: $25.7 bn--stock is up 24.7% year-to-date, says Forbes Magazine.


Cash: $25.4 bn--it's not so great that it's got $6.6 bn in debt, but it has a huge market cap of $348 bn, plus it continues to pay its $0.40 dividend, Forbes notes.

Cisco Systems

Cash: $23.1 bn--Barry Ritholtz of the Big Picture Typepad says Cisco's Chief Executive John Chambers has positioned the firm to be the 21st-century equivalent of AT&T back when that meant something.  


Cash: $20.7 bn-purveyor of the Windows system has seen its stock fall with the market, but it still manages to pay a $0.13 dividend, says Forbes.  


Cash: $16.6 bn--health-care related firms are often seen as recessionary plays, as people will continue to get sick, no matter what the economy does. The company recently bought Wyeth for $68 bn, Forbes adds  


Cash: $9.0 bn-the company is a cash-rich player in the digital wireless field, Forbes says. After seeing its shares fall steeply since last summer, they've staged a rally in 2009 and are up 12.3%. This is despite a 56% decline in net profit for the first quarter.

Johnson & Johnson

Cash: $4.7 bn-"The health care giant has weathered the recession relatively well, showing strong fourth-quarter earnings that beat Wall Street expectations. With cash in hand, the firm has poised itself to become a buyer, purchasing breast-implant maker Mentor on Jan. 23. Chairman Bill Weldon has said that J&J is ready to buy more, and there's no reason to doubt him," Forbes says.

Ameriprise Financial

Cash: $4.2 bn--"This financial-planning firm has almost as much cash, $4.2 bn, as it has market capitalization, $4.5 bn. The stock's shown some relatively recent signs of life, despite getting drubbed over the past year. In addition, Fitch Ratings recently downgraded the firm to negative, but lots of dollars in the bank ought to help it sort through the wreckage of its industry," Forbes says.