The fear of falling happens to be one of those natural fears we’re all born with. Don’t ask me why. I stuck with the physical sciences, not the biological sciences. 

If I had to guess, though, I’d say it has something to do with survival of the fittest. It’s akin to the tendency to avoid touching hot things, knowing not to try to breathe under water and the general feeling it’s just not a smart idea to venture into a dark, damp cave — especially when you hear something in there, and most especially when you hear the grumbling stomach of something in there.

Yes, the knowledge that walking off of high cliffs might inhibit your chances of passing your DNA along in the gene pool probably leads to this crazy fear of falling we all seem to have.

Now imagine the same fear induced by a falling market. This leads to an entire smorgasbord of tendencies that, while common sense might suggest to be smart moves, can actually hurt the investor. I’ll focus on just one (you can read the rest in “3 (Bad) Reasons 401(k) Investors are Over-Cautious,” FiduciaryNews.com, April 9, 2013).

We see the sign “safety first” everywhere. Traditional manufacturing companies display it proudly in their shop floors, right next to the sign that says, “Last Accident Occurred xxx Days Ago.” (At least you hope those Xs are in three digits.) Nothing heightens safety awareness like an accident. People get real cautious. Heck, even a good close call can make folks pay a whole lot more attention to safety. Think how you react immediately after the tires veer on to the noise strip indicating you’re leaving the safe part of the highway. You snap out of whatever dream you’re in and, for a few miles at least, your eyes are as wide open as if you just chugged a 64-ounce bottle of Jolt Cola (make that four 16-ounce bottles if Mayor Bloomberg is riding shotgun with you).

The market debacle of 2008/2009 left 401(k) investors with similarly wide eyes. The smart ones didn’t look at their statements and forgot about the whole thing until John Bogle shouted the “all clear” signal that it was again safe to wade into index funds. 

The unfortunate ones, tempted as Ulysses was by the Lorelei, succumbed to curiosity and opened their dreaded statements. Those that didn’t instantly turn into a pillar of salt suffered a worse fate. They opted to forsake the future and instead marry themselves to the purgatory of “safety first.”

Out with the nasty equities, whose promise of sunny days drowned in the rains of the credit crisis. In with the money markets, stable value vehicles or, quite simply, cash. So what if the returns lagged inflation? At least, these investors believed, the bleeding was stopped. In either case, they vowed to go back in the water as soon as the tide turned.

But a funny thing happens when you try to time the market. You lose. And those who put the short-term comfort of “safety first” ahead of their long-term need for return have lost. They’ve missed out on a four-year run that defies explanation. Perhaps, if these investors are lucky and analysts are right, the market will take a dip into correction territory and thus allow them to buy a little lower than they might otherwise have to.

Maybe, though, we shouldn’t blame these naïve investors. After all, they’re only doing what the financial industry has convinced them is the appropriate way to invest. They’ve measured their risk tolerance and determined they don’t have any. Ergo, they’ve left the market.

The market, in its agnostic wisdom, has returned the favor and left them, proving, once again, that when it comes to long-term investing — the kind most retirement investors need to undertake — safety never comes first. 

Your empirically derived return need always takes precedent over any feelings you have towards risk. Remember, if you need $1 million to retire comfortably and all you have is $10, you won’t retire comfortably, whether you put that $10 safely into the feathers of your mattress or lose it all on Lotto tickets.

At least in the latter case, you’re giving yourself a chance …

… but seriously, don’t ever put yourself in the situation where the only way you retire comfortably is by winning the lottery. The world is full of nice financial professionals who consider it their job you never get to this point. Why don’t you pick up the phone and call one of them?

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