Understanding the Risk/Reward Balance
All investments entail some degree of risk. Some investments have very limited risk (ex. U.S. government bonds) but others, like highly volatile stocks, can be quite risky. Generally speaking to achieve greater returns you must accept more investment risk as the graph below shows:
The key to retirement investing is to assume as much risk as you can comfortably tolerate, but no more. If you take on too much risk, you will be prone to overreacting to the market and that is one of the behaviors that significantly reduces investment earnings. If you jump out of the market when the market goes down, you are likely to miss getting back in before the market goes up. This behavior leads to selling low and buying high which diminishes your opportunity to realize positive gains in the market.