The problem is psychology. People don't HODL while their retirements drop by 20, 30, 40% in a week. High earners might, institutions can, but regular every day people they take the loss, and might never go back into the market again, forgoing those recovery years.

The average recovery is 18 months I think (I'm in a meeting, and can't look it up), but people like my dad watched his retirement fizzle out in the dotcom bubble, because he was all in on tech. Then he moved to safer bond and realestate funds, and his value never recovered, and then 07/08 happened and he watched what he thought were "safe" investments disappear almost immediately. He pulled everything out of the market, and never invested again. He went through 2 crashes on his portfolio, and to this day doesn't trust stocks and bonds.

He was sold an annuity that according to him is supposed to double it's payout every 5 years it is left un touched, so he didn't touch it for 15 years, now that he is drawing it down, it draws from principal before ever touching the growth, and when he dies, only the principal will get passed to my mother. It was basically a scam.

Peak to peak, inflation adjusted, can be 10 to 15 years for the really big busts though. It's not entirely irrational if you moved in at the peak.

If you were in on the upside then you've got much less ground to retrace.

And it's painful to watch your holdings drop like you said if you're planning on retiring in the next 1, 2, 5 years.

So I get it.

If you're 25 you've got tons of room to maneuver. If you're 60 things are a lot less rosy (even if by now you should theoretically be cycling into less volatile assets. But bonds didn't do that great either over that period) .