Cheer up! Your 401(k) is roaring back

• Despite all the calamities, real and imagined, you can take comfort in the fact that your 401(k) plan is probably doing fairly well.
• The S&P 500 has reached a new high — barely — if reinvested dividends are included.
• The average defined contribution plan currently has a balance of $74,380, up from $70,970.

Call this the Age of Anxiety. Gas costs an average $3.59. A huge storm is set to claw its way up the East Coast. And if the other guy wins the presidential election, the Republic will collapse, Yosemite will erupt, and we'll all be forced to bow to our new, deeply evil overlords.

But take a breath. Despite all the calamities, real and imagined, you can take comfort in the fact that your 401(k) plan is probably doing fairly well. You can thank financial markets, employer contributions and your own good sense for that.

The average stock mutual fund has gained 11.4% this year, and 124% since the stock market's bottom on March 9, 2009, according to Lipper. And even though the Standard & Poor's 500 has yet to match its Oct. 9, 2007, high, your 401(k) has, most likely, done exactly that.

The average defined contribution plan, which includes 401(k) plans and 403(b) plans, currently has a balance of $74,380, up from $70,970, says pension consultant Aon Hewitt.

One reason: reinvested dividends. The S&P 500 has reached a new high — barely — if reinvested dividends are included. The blue-chip index is up 0.5% from Oct. 9, 2007, through Wednesday.

But you probably did somewhat better than the index, if you invested a set amount in your fund at the end of every month — a practice called dollar-cost-averaging. Say you invest $250 a month in the Vanguard 500 index fund, which tracks the S&P 500. And, because you're utterly luckless, you make your first investment on the last trading day of September 2007, just as the worst bear market since the Great Depression is about to start. The fund trades at $140.61 that day, so you become the proud owner of 1.78 shares of the Vanguard 500 Index fund.

By the last day of March 2009, the fund's share price has shriveled to $73.44. Your $250 now buys you 3.40 shares — almost twice as many. Lucky you!

But, in fact, if you continued to invest regularly, you did fairly well, in part because of the shares you bought on the cheap. Had you invested $250 a month in the fund from Oct. 1, 2009, through the end of September this year, you'd have $19,587 in your account, according to Lipper. Your investment: $15,250.

Had your employer matched any of your investments, of course, you would have fared far better. A dollar-for-dollar match is a 100% return on your investment, and you'd be silly to pass it up under any circumstances.

But most people have done well with their 401(k) plans because most people don't put all their money into stock funds. Currently, about 47% of all mutual fund assets are in stock funds, according to the Investment Company Institute, the funds' trade group. In 2007, 54% of all fund assets were in stock funds.

Those who invested in bonds, which often rise when stocks fall, got a cushion during the last bear market. The average general U.S. bond fund has gained 32% since September 2007, Lipper says.

Those who invested in money market funds — well, it's best not to think about that. Money fund yields are lower than Satan's root cellar, and after 401(k) fees, you may well have a negative yield. Nevertheless, suppose our hapless investor put $250 a month into a 401(k) portfolio of 50% large-company stocks, 25% government bond funds, and 25% cash. He'd have $17,550 now. A portfolio of 60% stocks and 40% government bonds would be worth $18,285.

What should you be doing with your 401(k) money now?

* If you're younger than 50, the bulk of your 401(k) money should be in stocks. You're limited to what your 401(k) offers, so in most cases, that means large-company stocks. If your company offers a midcap stock fund, all the better. Midsize companies have room to grow earnings and often do better than their large-company brethren.

* Gear back on stocks as you approach retirement. You should decide when you retire — not the stock market. And, as investors have discovered, stocks are not your friends when the economy is bad and layoffs start rising. "If you're going to be drawing on your assets within the next five years, you should be more conservatively positioned," says Eric Wiegand, senior portfolio manager of the private client reserve at U.S. Bank.

* Rebalance periodically. A portfolio of stocks and bonds is remarkably self-balancing. If you want a portfolio that's 60% in stocks, rebalance if stocks grow to 70% or shrink to 50%.

* Keep contributing. You may think that your towering 401(k) balance comes from your uncanny ability to manage money. Maybe it does. But it probably comes from your ability to save. The biggest single determinant of how much you'll have at retirement is how much you save.

And most people have to save more. If you have the average 401(k) balance, you're not going to be able to retire on that. Assuming you want $50,000 in income the first year of retirement, $74,380 isn't going to get you far.

Still, the nice thing about 401(k) accounts is that the money is yours: You don't have to rely on government or a pension plan to dole it out to you. And even if that rotten, no-good lying scoundrel from the other party wins the election, nothing is going to change that.