Question: I currently have approx. $60,000 saved for retirement, combined between a Roth IRA (Vanguard and Raymond James) and a SIMPLE IRA (Fidelity) offered through my employer. All the money is in mutual funds like Vanguard's Total Stock Market Index fund, energy funds, materials funds, emerging markets, small- cap, etc. My entire portfolio is down by approx 25-30% from one year ago.

Also, I have approx. $28,000 in student loan debt from my Master's Degree. I am paying approx. 5.5% on those loans. My question is this:

Does it make sense to cease contributing to my IRAs (with negative returns) and shift that money to paying off my student loans?

or Does it make sense to keep contributing to the IRAs - with the assumption I'm buying these mutual funds "on sale". Any advice would be greatly appreciated! Heidi. Tucson, AZ

Answer: Sorry I have taken so long to post this Q and A. I got caught up in the latest presidential debate.

Anyway, the financial environment we're in rewards savings and penalize debt. I believe that dynamic will hold even after the global credit logjam is eased and the economy emerges from recession. The advantage of accelerating your student loan payments is that you lock in a 5.5% or so rate of return with every payment.

That said, it's important to keep funding your SIMPLE IRA at work, especially if your employer matches your contributions (up to a limit of 3% with a SIMPLE). The real investment return kick on any employer-sponsored retirement savings plan comes from the match. At the stage of life when you are savings for retirement you want to build up tax sheltered savings in a well-diversified portfolio. And you can put up to $10,500 in a SIMPLE this year ($13,000 if you're over 50).

We've all gotten a lesson in how diversification doesn't shelter a portfolio much during a global economic meltdown--unless the portfolio is heavily invested in Treasury bills, Treasury Inflation Protected Securities, or a similar safe haven. But that doesn't mean diversification, compounding over time and dollar cost averaging (putting money into the market on a regular basis) isn't a good strategy. The advantages of diversification will reemerge, typically within is three to six months, estimates Ross Levin, a certified financial planner and head of Accredited Investors Inc. in Edina, MN. "During times like this, don't extrapolate what is happening today to fifteen years down the road," he adds.

The current stock market "bargain" could become more of a bargain down the road. I'm not a market timer. Still, I like stocks. I am confident that the U.S. economy will rebound and that owning the total stock market index will pay off over time. So, I would continue to fund a retirement savings plan, and I would stick to a well-diversified portfolio. Time remains your friend.

However, assuming you continue to put savings into a retirement savings, then by all means take some of your discretionary income and it to work toward paying down your student loans.