When investing in stocks, it's important to understand how you can control risk. The conventional way is to allocate your stock investments across a variety of groups, primarily large-company, small-company, and international stocks. This form of risk control is called "asset allocation."

A second way to control risk when owning stocks is to lengthen your investment time horizon. Volatility is a short-term measure of risk in stocks. Stock returns tend to be extremely volatile over short time frames. Indeed, historically, the spread of returns of stocks over a single year is quite wide. Fortunately, over longer holding periods, the volatility of stock returns decreases. Thus, holding stocks for 20 or 30 years should be a lot less risky, in terms of potential volatility of returns, than holding stocks for just one year. Think of this form of risk control as "time diversification."

Many investors don't take advantage of time diversification because they don't believe they have a lot of time. This is especially true of people at or near retirement age. Actually, you have more time than you think, which means you have the ability to own a healthy portion of stocks and control risk by taking a long-term time horizon.

Look at the numbers:

A male who is currently 35 years old is expected to live another 40 years.
A 45 year old male should live at least another 31 years.
A 55-year old male is expected to live another 23 years.
A 65-year old male's life expectancy is 15 years.
A 75 year old male is expected to live at least another 10 years.

The life expectancy is even better for women:

A 35 year old female is expected to live to at least age 81.
A 45 year old female has a life expectancy of 36 more years.
A 55 year old female should live to at least age 82.
A 65 year old female has a life expectancy of 19 years.

A 75 year old female is expected to live to age 87.

As you can see, even at age 65, according to the actuarial kit supplied by Joshua Levy, you probably will live at least another 15 to 20 years, and maybe even longer. That's a long time, certainly long enough to have some exposure to stocks.

Bottom line: You have longer than you think. That means your money has to last longer and fend off the erosive effects of inflation longer. The only way your money can grow adequately and attempt to overcome inflation is by holding at least some of your assets in stocks.