A lot of people don't realize how bad losing can be. Behavorial economists, show that we psychologically feel loss about 2.5 times greater than gain. Thus finding $10 and losing $10 isn't the same thing. If you lose $10 it feels like a $25 loss. This is psychological.
In investments and fund management a mathematical truism is in place. If you buy a share in a company or fund and it loses 50% of its value, that same share has to gain 100% from that point onward for you to be at break even. This relationship of the "extra" effort required by an investment is shown in the graph.
Basically after 12% the extra return required is climbs fast. The first objective for an investor is to not lose. Seek safety and think long term. Another interesting fact is that most fund losses and points of maximum loss (peak to trough extremes) sometimes referred to as drawdowns are highly correlated with the volatility of a funds monthly returns. Years ago I did work in studying hedge funds and found this correlation between volatility and maximum drawdowns held true statistically. This makes sense as a hedge fund manager can't predict their own monthly or yearly returns. If they could they would control for it. Thus if you are selecting a fund, a recommendation is to look for a fund with a monthly volatility of less than 25%.
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