In the recent market turmoil, I too have not been immune from worries that I had best redeem all or most of our equities right away lest they go still lower. Had I done so, I would have locked in major losses and perhaps destroyed a heretofore reasonably good long-term record.
Studies have shown that every year there are seemingly good reasons for getting out of the stock market. To give just a few examples, there was the Cuban Missile Crisis, Three Mile Island, the early 1973, 1987, or 2000 equities bubbles, the Savings and Loan Crisis, the 9/11 terrorism, and so on. Yet, despite all the things that might spook the markets, for every $1 invested in the S&P 500 Index effective 7/1/1958 and merely left alone for the next fifty years, one would now have over $140 as of the end of the first half of 2008.
This is not to say there will not be down periods. There most certainly will. The eight and a half years since early 2000, for instance, were at best about a break-even period, while most of us can look back on more losses than gains. But the odds for the long-term investor, who stays in the market through its many gyrations, are better than for either the person who tries to time when to be out vs. in or the one who has all her or his nest egg funds in less volatile bond assets.
Inflation is a major risk to potential retirees. It often gets insufficient consideration. Some savers naturally prefer to avoid stocks entirely as being just too liable to go down. Yet the risk of outliving one's financial resources can be much greater if the portfolio lacks stocks or stock mutual funds. When two nest eggs begin with the same amount, the odds are that, relative to a mixture of stocks and bonds, a non-stocks allocation will barely keep up with inflation, meaning one has to work longer, have less to spend in retirement, or run a real risk of exhausting available funds, if fortunate enough to live long after retiring.