You are identifying two different issues both of which are valid -- but for discussion purposes, let's separate them.
The first issue is, investors with a longer investment horizon (i.e., a longer period of time to make investment gains) may accept greater investment risk. An investor who won't retire for another forty years can assume greater volatility (i.e., ups and downs) than someone who is five years from retirement. Simply put, the young investor has time to recover from down markets. Let's consider the most recent investment crisis. Stocks began to tumble in late 2007, and they have not yet fully recovered. In fact, the S&P500 is at about 80% of its previous high. This is precisely the reason that it was not appropriate for an investor nearing retirement to be invested primarily in the stock market. The media has been full of reports of individuals who were forced to delay a planned retirement indefinitely because their portfolio was decimated. This is a classic example of poor asset allocation.
An investor who is nearing retirement should have a reduced allocation to stocks with an increased emphasis on bonds. The advent of target-date mutual funds is a direct response to this need. For example, a 20-something investor may want 100% stocks. As she becomes 30-something, she may decide to allocate 15% to bonds. At 40-something, she may elect to reserve 30% of her portfolio in bonds. At 50-something, she may want 40% in bonds, and so on. By the time she reaches age 70, in my mind, there is absolutely no reason to have a majority of her portfolio in stocks. Stocks are simply too volatile over relatively short periods. In general, a 70-year old cannot wait seven to ten years to recover from a market dump.
I've observed an interesting and disturbing phenomenon when it comes to asset allocation. Investment professionals often do a very poor job of helping their clients understand the importance of asset allocation. These professionals argue that clients just want the best returns and if they don't deliver, the clients will take their money elsewhere. In my mind, that's a failure of responsibility to educate the client. Investors don't like surprises, and they deserve to understand the essential and unavoidable trade-off of risk and reward.
Asset allocation is the single most important decision that investors make. Most experts agree that 90% or more of investment returns are a result of asset allocation rather than securities selection. This is an important statistic as it relates to the active v. passive debate. It means that you can achieve 90% or more of your investment objectives simply by indexing your money. Through active management, you will be seeking to improve upon no more than ten percent of the performance that indexing provides. It's reasonable to question whether or not it's worth the risk.
That brings us to the second issue that you raised why shouldn't you gamble with your portfolio? After all, many of us have a sense that gambling can be fun. I enjoy a little gambling now and then. I'll even do it a little with my investment portfolio. It adds a little intrigue and excitement. We know the odds are against us in a casino, but we still gamble in them, right?
How much you want to gamble with your investment portfolio is an individual decision, but it has little to do with how much time you have to recover from mistakes. It is more a matter of personality type and risk aversion. Are you a go-for-broke (note the irony in that phrase) type of person? Perhaps you want to try to hit a home run by betting that an individual stock will rise dramatically after you've purchased it. There's nothing wrong with that. By doing so, you should be aware that there is a risk of the stock going to zero and you losing your entire investment.
Decisions like this are what make life interesting. Different strokes for different folks, right? You just need to be clear on the statistical chances of outperforming the benchmark (i.e., the index). Most professional investors cannot beat their benchmark. Maybe you're better than the professionals or have superior knowledge in a particular area. Perhaps you're investing in an arena where the market is not very efficient. You could be a winner, but your odds are probably better at a craps table. Now, THAT'S fun! :-)