I just did this myself, yesterday. Yes you will lose all your jailbreak apps. So, first look at all your Cydia apps and write them down. Then go to Cydia and look in the new "Manage" icon on the Cydia homepage, and check and see if all the paid apps you have are listed there. Some may be missing, but when you go to download them it will say they have already been paid for. Remember to think about the apps that have no icon and write them down, also. Keep in mind that you will probably want to use some of the newer apps rather than the older ones, not 4.x compatible.
Backup everything in iTunes. Some say restore, if everything is running smoothly with not too many weird things happening, then you should be OK to proceed without a restore. If you don't restore first and you have problems, you can always do it again. I restored and then reloaded all my Apple apps, then did the JB.
Follow the clock on the GP app. Click start JB, watch the clock and the highlighted instruction on the left it will give you a count to get your finger on the Sleep button, and a count to hold the Sleep button down, a count to hold the Sleep and Home buttons and when to let go. If you don't see the text scroll by on the screen within 5 to 10 seconds or so, it probably didn't take, try again. It took me a while to notice the clock count down and the highlighted (bold) text were in sync with each other, a real help to get the timing right.
When you try to download Cydia by taping on the "Loader" it may take a while for the Cydia icon to appear, the servers are slammed, so many try to JB at once. Just keep trying, took me about 8 hours. Even after it appears you may have to try over and over.
After your JB, then re-download all of your Cydia apps that you want to keep, just keep in mind that some won't be compatible with 4.2.1. Check the app page for compatibility info, most won't let you download a non compatible app, some will.
I streamline my apps by finding apps that did several thing in one app, instead of several apps doing only one or two things like the old ones did. For instance I used Folder Enhancer instead of Categories.