We have heard this statement echoed from a large number of our clients and friends.  I found an article by Dr. Claus te Wildt at Fidelity that does a good job of addressing the priority people place on not losing money.

We continue to advise individuals to ignore the daily gyrations of the financial markets that are sensationalized by the media such as CNBC, and focus on the long-term horizon.  Today a 50-year-old male that does not smoke with average health has a 50% chance of living to age 84 and a 40% chance of living to age 87.  If your investment assets need to work on your behalf for 34-37 years, then don’t you think you should be asking…. Earn Me a Prudent Risk Adjusted Return!

Here are excerpts from the article:

“As we enter the second quarter of 2012, the Barron’s cover of January 30th still sticks in my mind. “Don’t Lose My Money!!!” was the headline, and although the start of the year was very promising, this sentiment is still prevalent when I meet with advisors. Mutual fund flows also confirm this impression, as the average investor is still pulling money out of equity funds.

The task of not losing money for one’s clients is in itself actually not that hard, as Treasury bills and money market funds are certain to preserve their capital (in all probability); however, the problem is that they offer little more than just that, as their yields are comparatively meager. This is by design, as the policy of the Fed is to make riskless money as unattractive as possible in order to force investors who need a return to take on some risk.

Unfortunately, seeking a higher return involves taking risks, which brings about the possibility of losing money – exactly what clients are really afraid of these days. And who could blame them? The last ten years were nothing short of horrific, and there is no guarantee that the next ten years will be any better. What I do know, however, is that most clients need a return on their money to reach their retirement goals and that, over the long-term, taking on (diversified) risk usually works.

Therefore, at some point our clients need to and should take on risk again, and to me, the more interesting question is not if, but how much risk. Fortunately, the investment universe is full of choices at different levels of risk. The trick is to find the right one that matches an individual client’s unique profile………

In 2007, Nassim Taleb wrote a book called The Black Swan. It was about the fact that financial crises seem to happen a lot more often than many had previously thought. While this has certainly turned out to be true, we should not forget that “black-swan events” are called black-swan events for a reason: they happen (still) very infrequently. And, after a decade of “black-swan” events (Internet bubble, 9/11, housing bubble, financial crisis, nuclear meltdown in Japan, sovereign debt crisis in Europe) we should be due for a more “normal” investment period. If this is the case, it would make sense to take on a little bit more risk.”