When Douglas Davis retired last year from an engineering job with



, he took his lump-sum retirement and invested it, along with the rest of his savings, in the stock market, primarily in small-cap stocks.

A generation ago, most of that money probably would have been stashed in bonds rather than in a notoriously volatile segment of the stock market. But, "we're living in a boom time right now," says Davis, 52, of Fultondale, Ala.

Davis' attitude is typical among many older investors who refuse to tame their aggressive positions, even though they may be retired or nearing retirement. They are spurred on by the need to make their savings last and the desire to take advantage of Wall Street's record run. And with a new rule allowing older investors to work and collect Social Security, they have a bit of a built-in safety net.

"I believe in the market," says Thomas Castronovo, 68, an architect in Akron, Ohio, who has 60% of his portfolio in stocks, 30% in mutual funds and annuities, and just 10% in money markets.

Historically, there's good reason for them to put their fortunes in the hands of the market. There are more winners there than in the state lotteries. But losing in the market can be disastrous. And it's not just a buck or two.

Surprisingly, some financial planners say that tossing everything into the market at this stage in life may not be as risky as it appears.

Investors whose short-term living expenses are accounted for probably can withstand the risk, says Kacy Gott, an investment adviser at

Kochis Fitz

in San Francisco. For example, they may use laddered bonds -- a collection of bonds with maturity dates that match their expenditure needs -- to pay the bills if the stock market turns south.

"Everything I own is paid for," says Castronovo. "I don't have any mortgages or debts or anything." Furthermore, Castronovo is still working, and he receives $15,000 annually in Social Security.

Besides, having a few gray hairs can be advantageous when it comes to investing. Unlike many young investors today who have not experienced the scary ride down the Wall Street roller coaster, at least those nearing retirement can remember the recessionary years of the mid-1970s and early-1980s, or the market's hair-raising nosedive in 1987.

John R. LaFear remembers. He lost 30% of his portfolio in the crash of October 1987. But he had foresight, saw it as an opportunity to buy at bargain basement prices, and sat tight. At age 56, his portfolio is 100% stocks. This Huntington, W.Va., certified public accountant has spread his investments among large-, mid-, small- and micro-cap stocks as well as international issues.

"I don't feel like I'm taking on any more risk than if I were investing in bonds because

they see as much volatility," he says.

LaFear and Davis say they have measures in place to reduce risk. LaFear has created what he considers a well-diversified portfolio, and he doesn't intend to dip into it for 10 or more years. At that point, he'll probably place 30% of it in fixed-income investments, he says. Davis has a floor for each stock, and then he sells.

By consciously planning for a downturn, these investors are far ahead of contemporaries who may have aggressive portfolios and not realize it. As a result, these contemporaries may not have a safety net in place.

Aggressive investing comes in several forms, and some can be deceptive. Take, for example,

Procter & Gamble

(PG) - Get Report

, long considered a conservative blue-chip stock. Many P&G employees filled their retirement portfolios with this solid-as-a-rock, sure-bet stock, only to see it plummet 50% last March. Another sure thing,


(MSFT) - Get Report

, has taken a similar nosedive recently.

Putting all your eggs in one basket is aggressive and, hence, risky, says John Roberts, a registered investment adviser at

Denver Investment Advisors

in Denver. In fact, having too much money in any one asset class is aggressive, he says.

The long ride on Wall Street has distorted risk, say many financial advisers. Many investors think they should be getting a 20% to 25% return, says Mark Kaizerman, a certified financial planner in Natick, Mass. "That's not historical perspective," he points out.

Roberts worries that some aggressive investors are pushing the envelope. For much of the '90s all you had to do was own the 50 largest stocks in the

S&P 500

index, and you compounded your money 20% to 30%, Roberts says. "It was a slam dunk," he says.

"As interest rates rise, risk goes up," Roberts notes. Government bonds suddenly become more attractive. Like many advisers, he preaches diversification.

"By being properly diversified, you own something you hate, you own something that's going down" in price for cyclical balance, Robert says. While some aggressive investors may agonize over missed opportunities, it's "not as painful as having all your eggs in one basket, and that basket's plummeting," he says.

In general, financial advisers no longer use a set formula for determining asset allocation at specific ages. They say your portfolio should be aligned to meet your spending objectives and tolerance for risk. But they say a pot should be set aside for short-term needs and emergencies, and that more conservative investments should play a larger role in your portfolio as you age.

Stacie Zoe Berg, author of The Unofficial Guide to Managing Your Personal Finances and The Unofficial Guide to Investing in Mutual Funds, is a freelance journalist whose work has appeared in the Washington Post, The Washington Times, trade magazines, Consumer Reports and on financial Web sites.