Where's the best place to put new 401(k) contributions now?

— -- Many investors are peeking at their 401(k) balances and discovering that, in one short year, they've lost the equivalent of a new car. It would have been a lot more fun losing that money by driving a Cadillac into a hotel swimming pool.

So as you peruse your options for where to put next year's 401(k) money, you're probably leaning toward the safe options. In fact, if your 401(k) plan allowed you to bury your cash in a coffee can, you'd probably opt for that.

Logically, however, you'd think that the best place to put next year's savings would be in this year's worst performer. After all, you're supposed to buy low and sell high.

But that strategy hasn't done much for performance. Neither has putting your new money into last year's hottest performer. What matters most is how you allocate your overall savings — and how much you save.

Managing a 401(k) involves two decisions: Where to invest your current balances, and where to put your future contributions. Today we're going to deal primarily with the latter. You're continually shoveling money into a 401(k), and it would make sense that how you direct that money could affect performance.

We conducted a small experiment to see whether there's any reasonably simple strategy for making the most of your new contributions. Let's assume that, 20 years ago, you had $10,000 in a 401(k). You put $2,000 apiece in a large-company stock fund, a midcap stock fund, a small-cap stock fund, a government bond fund, and a corporate bond fund.

Each year, you contributed $2,000. Had you simply split your money evenly between the five options, you would have had $149,201 by Sept. 30, according to Lipper. (In case you're wondering, we used Lipper's indexes for each type of fund. The indexes measure the performance of the largest funds in each category.)

But what if you had funneled your money into the previous year's laggards? In 1988, for example, you would have invested $2,000 into small-company stock funds, which tumbled 5.5% in 1987. You would have picked a winner, too: Small-cap funds soared 20.3% in 1988.