I rolled over my 401(k) after I retired last February and put the money mostly into technology funds. It seems that I bought into the market almost at its peak early last March. I have now lost about 20 percent on paper. Do you think tech funds will come back, and if so, when? What should I do?

Paul's Answer:

To answer your first question, I have no idea whether technology funds will "come back," by which you evidently mean regain their highs of last winter and then move upward from there. By historical standards, most of the stocks that technology funds hold in their portfolios seem very high priced, even after this year's corrections.

I do believe that over the next 20 years technology will be a good sector in which to have some money invested. But the same is true for many other sectors. And most people don't have any need for a technology fund. Indeed, it's hard to buy a growth fund these days that doesn't already have a lot of technology stocks in its portfolio.

What should you do now? I say you should start by making an investment plan and putting it in writing. It's hard for me to imagine that somebody who was about to retire would write a plan that said: "Roll over my 401(k) investments and put most of the money in only one sector of the economy. Ignore risk. Ignore the conventional wisdom to diversify. Ignore everything except getting maximum returns. Bet most of the farm on what's been doing well recently."

And yet you acted as if you had exactly such a plan. As a result, you are now in an unfortunate position: You can make a good plan, but you can carry it out with significantly less money than you had last winter.

But now is a great time to get a fresh start and learn from your painful experience. Start by being very clear out what you need from that money. I would guess you don't need it for income, or you would not have invested in technology funds. I suspect you are looking for long-term growth for your later years or to leave an inheritance to your heirs.

I suggest that instead of trying to maximize the probability of high growth, you try to maximize the probability that you'll avoid losing your money. To do that, reign in your passion for maximum growth and instead adopt a realistic objective of earning 10 to 15 percent annually on your portfolio.

If the money you have to invest is sufficient, I recommend you put it in Vanguard funds, most of which have minimum initial investment requirements of $3,000 per fund. The Vanguard Equity Buy-and-Hold Portfolio on our Web site calls for eight equity funds and a minimum of $30,000 to get the percentages just right. These funds include 500 Index, Value Index, Small-Cap Index, Small-Cap Value Index, European Stock Index, Pacific Stock Index, International Value and Emerging Market Stock Index.

In nutrition terms, that combination would give you a very complete and balanced diet. If you invested in all those funds and you wanted to add a technology fund or an aggressive growth fund with no more than 10 percent of your portfolio, you could do so with my blessings.

If you have only enough money to invest in four Vanguard funds, you could get a reasonably well diversified equity portfolio using 500 Index, Small-Cap Index, European Stock Index and International Value.

But before you do anything else, make a written plan that calls for lots of diversification and a realistic, conservative approach. You'll never be sorry you still have the money you invested. But you can be very sorry if you lose it.