Millions of shareholders have dumped their funds in the past year. Outflows totaled a record $152 billion in October and November, according to Morningstar.

Some panicked investors fear the worst, another Great Depression. They point to last year's downturn, which eerily resembles the showing of 1931, when the market gave up 43.3%.

Suppose we stand on the verge of a depression. Should you sell all your stock and bond funds? Probably not. For two decades, financial advisers have been examining depression scenarios. Nearly all the studies reached the same conclusion: Investors with long-term horizons should wait out the hard times.

Much of the research has centered on retirees, the most vulnerable savers. Financial researchers have sought to determine how much retirees could withdraw annually without running the risk of going broke. In one study, William Bengen, a financial planner in El Cajon, California, looked at past market performance, seeing how investors would have fared if they retired in different years, including 1926, 1927 and so on. Bengen assumed the savers withdrew certain amounts annually, such as 3% of assets, and kept half of portfolios in stocks and half in bonds.

Those who retired during the Depression faced a run of very bad luck. Starting in 1929, stocks dropped hard for four consecutive years. But even that uniquely harsh downturn would not have bankrupted retirees. According to Bengen's research, savers who retired in the late 1920s would have eventually recovered from the bear market. Those who withdrew 4% of their portfolios annually would not have exhausted the portfolios for more than 40 years.

Historical studies should comfort today's retirees, says Fran Kinniry, a prinicipal with Vanguard's Investment Strategy Group. "If you have been withdrawing 4% or 5% from a diversified portfolio, you can probably continue with your plans," he says.

It's very possible that conservative investors will recover from the recent downturn in a few years, says Kinniry. To appreciate why, consider an investor who has his savings in

Vanguard Tax-Managed Balanced Fund

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, which keeps about half its assets in high-quality municipal bonds and half in stocks that track the Russell 1000 Index, a benchmark of large-cap stocks.

In 2008, the fund lost 18.3%, while the S&P 500 dropped 37%. If the markets achieve single-digit rises for several years, owners of the balanced fund can be back in the black. Odds are good that the balanced fund will generate such modest returns. "Right now, the S&P 500 yields 3%, and bonds yield 4%," says Kinniry. "If you get some small capital gains on top of the yields, you can make up for last year's losses."

Faced with the big declines of 2008, some retirees might think they should sell all their stocks and shift to bonds. But that is a mistake, according to recent research by

T. Rowe Price

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. The fund company considered a hypothetical investor who retired with $1 million and planned to withdraw 4%, or $40,000, the first year. Then the withdrawals would increase by 3% annually to account for inflation. After suffering a 30% loss in the first year, the retiree shifted to holding all bonds.

To estimate how the all-bond portfolio would fare, T. Rowe Price used a computer model to consider 10,000 possible scenarios for the next 30 years, including harsh and benign possibilities. In 93% of the cases, the all-bond portfolio produced meager returns and would have been exhausted before the end of the period.

Retirees have a better chance of avoiding bankruptcy if they hold a mix of stocks and bonds, T. Rowe Price concluded. This is true because stocks tend to outdo bonds over long periods. The performance gap tends to be especially wide in the years following market downturns. During those periods, stocks often stage rallies as they recover from depressed levels. When stocks are as cheap as they are currently, they deliver average annual returns of 15% during the succeeding five years, according to Leuthold Group.

Instead of shifting to all bonds, nervous retirees might consider a variety of temporary measures aimed at providing an extra measure of safety. For starters, retirees can take a fixed dollar payout each year, such as $40,000, and not adjust the figure for inflation. By stopping inflation adjustments, savers can increase their odds of success substantially, T. Rowe Price said.

Another way to protect assets is to put part of the portfolio into fixed annuities, which can make guaranteed payments for certain periods, such as 10 years. Some annuities currently yield 8%. A retiree could put a third of a portfolio into annuities and the rest in stock and bond funds. Then the saver could live on income from the annuities for five or 10 years. At the end of that time, the retiree could begin making withdrawals from the mutual funds. By postponing the fund withdrawals, the saver increases the odds that stocks will recover and provide plenty of returns to support a long retirement.

Stan Luxenberg is a freelance writer who specializes in mutual funds and investing. He was formerly executive editor of Individual Investor magazine.