Fear. Disgust. Anger. Disappointment. Frustration. Confusion.

Those have been the reactions of thousands of people who’ve opened their recent 401(k) statements. The stock market has been sick and our 401(k) balances show the symptoms quite clearly. Folks are spotting dips in excess of 30% over the course of a single month. It’s ugly out there.

The natural reaction to these scary 401(k) moments? Run for the hills. Get out while you can! Yank that money out of there before you’re staring at a statement where the only numbers are to the right of the decimal point.

Why would you want to keep feeding a 401(k) when the money you’re pumping in its direction is leaking out so fast, right?

Wrong. Very wrong. It might seem counterintuitive to push money into an investment that’s declining in value, but it’s the right thing to do. This nasty economy does NOT justify decreasing your 401(k) contribution.

There are at least four rock-solid reasons not to abandon ship:

Our economy’s resiliency. This whole downturn might feel new to you, but it isn’t. The market goes up. The market goes down. Overall, however, it tends to grow over time. In fact, we’ve seen tremendous total growth over just about every meaningful period since the Depression. There’s every reason to believe that things will improve considerably in the future. Walter Updegrave writes for CNN and Money that “The point, though, is that the economy and the markets will rebound from this crisis just as we’ve recovered from the Crash of ’87, the Asian crisis of 1997, the Long-Term Capital Management debacle in 1998 and 10 recessions since World War II.”.

Your balance might be down today, but in the long run it’s likely to increase. In fact, some people are actually encouraging people to increase their 401(k) contributions right now because they believe the recent downturn represents a significant market overcorrection and argue that investors can pick up great value stocks at insanely low prices right now. It is, they argue, a buyer’s market. Recession Proof Living recently recounted an office visit from a 401(k) rep that hammered that message home. That kind of advice stems from the realization that our economy is incredibly resilient. Don’t bet against the overall economy. In the long run, you will lose.

Employer matching. If your 401(k) is set up with employer matching intact you simply MUST keep investing. For all practical purposes, your contributions are doubled. Thus, you can withstand significant losses while still staying ahead. Even if you could find more solid investments, it’s incredibly unlikely that the gains you’d discover would trump the value of your employer match. Let’s say your employer matches your contribution dollar for dollar. If the bottom completely falls out of the market and your investment decreases in value by 49%, you still have more money set aside than if you stuffed all of your cash in a safe mattress somewhere. As Cake Financial notes, your employer may match up to 6% of your annual salary. That’s a lot of free money to walk away from!

Taxes. You’re not paying taxes on the income you contribute to your 401(k). You’re not paying taxes on the money that’s growing (or will eventually be growing again) in your 401(k). The IRS will be happy to whack you around, however, if you start yanking your cash out of your retirement fund. The government will be equally pleased to take some of your money if you put it into alternative investments that don’t have the kind of tax advantages we find with a 401(k). When you begin to calculate the tax repercussions of either (a) pulling money out of your account or (b) putting your money elsewhere, you’ll get a better idea of why it makes sense to keep feeding your 401(k). A post at Dr. Jim Collier’s provides a great example of a tax horror story associated with getting out of a 401(k) too early. The impatient investor netted a fraction of what they probably deserved and ended up with a massive, lingering tax burden in the process. Brunette on a Budget provides a nice rundown of the tax implications of giving up on your 401(k).

Flexibility. The expression “401(k)” doesn’t tell us anything about the nature of your investments themselves. A 401(k) is not a type of investment, really. It’s a wrapper with certain legal protections (particularly in terms of taxation) that may contain any number of financial instruments. What does that mean to you? It means that if your 401(k) is circling the drain, you have the option to redistribute the investments within the plan. Most company plans will have multiple 401(k) investment options and some offer tremendous flexibility for those with a “do it yourself” streak. If your 401(k) is in the process of being crushed, take a look at what’s actually behind the wrapper. Then, talk to the folks managing the plan and take advantage of the flexibility available to better protect yourself. You may not remember it now, but when you signed up for your 401(k) you probably indicated a preferred set of investments for your contribution. It might make more sense to revisit that decision than it does to pull out of the plan.

In our next post, we’ll look at a few caveats to this position. There are times when it might make sense to say “no” to a 401(k). Overall, though, they remain a valuable means of saving for retirement and you probably shouldn’t let recent economic events scare you away from continue your investment pattern.