It is time to be conservative about your 401k! The stock market is a bubble at these valuations. Do not buy and hold. That will be detrimental to your financial health. We have not seen the stock market bottom yet:

http://www.tradingstocks.net/html/near_bottom.html

What ever you do, make sure you do not take on more debt! Pay off existing debt! If you have existing savings in cash or cash equivalents such as short term US treasuries you should be fine for a few years. At the bottom of depression you may have to jump out of US dollars if FED freaks out and really prints money!

All of the prices, and salaries you see around you were based on inflated credit that happened over 50 years. It is based on a money supply that is almost entirely bank credit. People borrowed and borrowed and spent. The amount of money borrowed reached sky high. You earned in good times! Now, it is reversing course!

Deflation is here!

http://www.tradingstocks.net/html/latest_opinion.html

There is nothing FED can do about it. Credit inflation happened last 50 years. The bubble is inflated. The cause is in place, the effect will follow. It will deflate. For inflation to happen, all of the following must happen:

1. FED makes credit available. [Yes they do]

2. Banks must lend. [No they don't, because they don't think they will get their money back]

3. Borrowers must borrow. [No they don't, because they don't think they can pay it back]

4. Consumers must spend extravagantly and chase too few products with too much money. [Consumer is a saver now]

http://www.tradingstocks.net/html/financial_crisis.html

The best thing you can do now is to pay off debt and become debt free, because it will get harder and harder to make money in an economy where the total money supply is shrinking at record speed. M1, M2 does not matter. The bulk of the money supply is bank credit! 95% of our money is borrowed money. It has principle + interest to pay back. So, we have the principle since we borrowed it. Where will the interest portion come from so that we can earn it and pay it back??? It does not exist! It is a ponzi scheme. The music has stopped! In a credit based monetary system, we must keep borrowing or the economy will stop. That is what is happening. It is called deflation. The money supply is deflating. When there is 10 times less money in the system, it will be impossible to keep the current prices and salaries at the current levels. Pay off debt now and be debt free. Get ready for days where there is no money to be earned!

http://www.tradingstocks.net/html/banks_create_money.html