Investing: how long is "long term"?

• Position: Your Life

The media presents almost a daily diet of stories about retirees who have returned to work or near-retirees who have postponed retirement because their portfolios were decimated by the stock market decline. We read about parents forced to send their children to less-expensive colleges than they had planned because their stock-heavy 529 college savings plans were hard hit, or the U.S. senator who watched nearly half of his soon-to-be-needed campaign funds disappear after he had invested them in stock mutual funds seeking "maximum" returns.

Part of the problem for many investors has been poor portfolio diversification, with too much allocated to a handful of technology stocks or their employer's stock, and not enough to other types of stocks or equities such as real estate, or in bonds and cash equivalents. Perhaps the bigger underlying problem is a misunderstanding of what financial planners mean when they advise people to invest for the long term and save for the short term, according to the Financial Planning Association.

The concept of saving for short-term goals is fairly well understood. Most people trying to accumulate funds for needs in the next one to three years--such as the down payment on a car, dream vacation, or home---don't invest that money in stocks or other volatile assets. Instead, they rely on passbook savings accounts, short-term certificates of deposit (CDs), money market accounts, or perhaps short-term Treasury bills.

The...