NEW YORK (CNN/Money) - A bruising market and news that Enron employees lost their retirement savings in the wake of the company's collapse may leave some people feeling like they're just throwing good money after bad into their 401(k)s. Do yourself a favor and don't join them.

Sure, there are lots of ways a 401(k) can disappoint, but many of them can be prevented if you manage your account smartly. The first step is to recognize the fundamental reasons to invest in a 401(k) regardless of short-term market performance or corporate news.

For starters, you get two big tax breaks: 401(k) contributions are made pre-tax, reducing your taxable income and hence your tax bill; and your money grows tax-deferred until you withdraw it. If your company offers matching contributions, you get free money added to your investment balance as well, which is a huge help since a big balance compounds more quickly than a small one. And, in the long term, stocks have proven to be the best fuel for retirement savings growth. From 1926 through 2000, stocks returned an average of just over 11 percent per year versus just over 5 percent for bonds.

401(k)s in 2002 The federal limit on annual 401(k) contributions has risen to $11,000 this year ($12,000 if you're 50 or older).

That may seem like cold comfort after a bitter 2000 and 2001. The market was rough on everyone, and you've got the red marks on your 401(k) statement to prove it. Fair enough. But don't forget: You're investing for the long haul and you're buying on a dollar-cost averaging basis. That reduces your risk and your average cost per share since you're investing in regular intervals regardless of market performance. What's more, a down market provides greater buying opportunities, meaning you can buy more shares for less now, which will pay off when share prices rise in coming years.

Even when you get the general principles, it's hard not to sigh over 401(k) losses. But there are ways to minimize losses going forward. Check out our three-step plan to get your savings back on track. The principles are simple: reassess your holdings, make sure they're diversified, and contribute at least enough to qualify for a company match -- more if you can swing it.

Enron has been a scary story for investors who put their faith and money in companies they work for. But at the end of the day, Enron's debacle should make for smarter 401(k) investors, not scared ones. The object lesson is that having too much company stock in your portfolio, no matter how great the company, puts your savings at an unacceptably high level of risk. (For more on 401(k)s and company stock, click here.)

Likewise, placing too many bets in any one sector can deal a near-fatal blow to a portfolio. That's why being well-allocated across sectors provides some cushion during inevitable market downturns. (For a quick estimate of how your portfolio should be allocated, try our Fix Your Mix calculator.)

If you have a sneaking suspicion your portfolio houses some lemons, don't dump them before examining the funds' four Ps -- performance, people, portliness and price -- which Morningstar advice guru John Rekenthaler examines in his article "When to Bail." For help in reviewing these elements in your funds, use our Morningstar Lookup feature.

And if you decide you do need to squeeze a lemon or two out of the bunch, you'll have to find a good replacement. You'll find plenty of ideas in our Ultimate Mutual Fund Guide and Money 100 list of best funds.