I contribute to a risky fund; should I let it ride?

Q: I am a government worker and contribute to the Thrift Savings Plan (although not much yet as I want).

The great thing about the TSP is that you don't need to "manage" your account due to the "extreme" diversity of its nature.

Now a seemingly stupid question. With the drop in the market do I need to take any actions or do I just let it ride? I contribute to the lifecycle fund and since I started to invest for retirement late, I have chosen to contribute to the fund that is the "riskiest". Do I let it ride?

I collect a 20-year retirement from the Army and don't expect Social Security will be there for me or my wife later on.

A: So you chose the "riskiest" plan -- probably because you're still in your forties or early 50's and realize that you have many years to make this work. And because you know that over the long run -- 20 years -- no one has ever lost money in a diversified portfolio of large company stocks. But now you know why this was called the "riskiest" fund! And that's why I always suggest having some "chicken money" -- in CDs or T-bills -- that lets you sleep through sharp market downturns. That's REAL diversification.

OK, enough with the lecture.

You know that bottoms are made when people in your position capitulate and decide to sell. If you can't ride this out without panicking, then sell 20 percent and switch to the money market alternative. Or believe in the future and hold tight. Just don't panic if the market goes lower!!

And, of course, you can always save MORE!

P.S. Life insurance is pretty cheap these days -- www.accuquote.com -- and if your worry is for your wife after you're gone, consider a 30-year level term policy.

Terry Savage is a registered investment advisor and the author of the newly published The Savage Number: How Much Money Do You Need To Retire? (256 pages, Wiley, $24.95).