Excessive greed during the late 1990s might have caused you to lose a lot of money over the last three years. But excessive fear right now -- be it over Iraq, terror, deflation or valuations -- could cause you to lose again when the market recovers.

Granted, there's nothing healthier than showing appropriate respect for the dangers of the market. But the operative word is appropriate.

Driving to the supermarket can be dangerous. And you wisely wear a seat belt when you get behind the wheel. You don't, however, cover your entire body in bubble wrap. Investing with caution will keep you from financial disaster. But outright fear and panic can drive you into investments that are weak if not wretched.

Safe but Sorry

Losing loads of money in the market can be a disaster. But keeping too much of your money in super-secure investments can also wreak havoc on your retirement portfolio.

If you're playing it too safe, you might wind up in nothing but conservative investments that won't deliver the returns you need to build a plentiful retirement portfolio. Holding only cash and bonds right now might seem like a brilliant strategy. But today isn't the

beginning

of a bear market. This country's been in one for three years already.

Plus, a portfolio of stocks

and

bonds should produce better returns over the long haul than one with no stocks in it. For the 33 years ending in 2002, a portfolio of cash and short-term bonds would have delivered an average annual return of 7.5%, according to Charles Schwab. But a portfolio with 60% in stocks would have returned more than 10% each year over that same period.

You also could jump into investments that are destined to underperform for years to come. Because safety is what has worked over the last few years, investments such as Treasuries aren't such a bargain today when compared with beaten-down stocks. Stocks might not be able to produce double-digit gains every year, but they should be able to beat 4% a year over 10 years. That's about what the 10-year Treasury is yielding right now. In fact, you'll make more yield from the

S&P 500

right now than you'll get from the two-year Treasury.

In essence, the exceptionally low yields on Treasuries tell you that they've got a lot of room to rise. And as yields go up, prices go down. At best you make a paltry return. At worst, you lose money in the short run.

An Expensive Security Blanket

You also might wind up paying too much in the name of almighty protection. If you have money you can't afford to lose, that cash should be stashed in a money-market account or CD -- something that cannot possibly drop in value.

But once you start getting into investments with fancier names and strategies, you start paying more and more for that protection.

Principal-protected funds are one example. These funds are supposed to own portfolios of stocks, bonds and cash that are then wrapped in insurance contracts to protect your principal. You have to keep your money in the fund for a stated period of time -- say five years. And the fees can be exorbitant, running from 1.75% to 2.5% a year on some funds. (That doesn't even include the sales charge you might pay to buy one.) Considering that a money-market fund will charge you well under 1%, those fees are a rip-off.

Of course, the argument that you'll hear is that a principal-protected fund offers you the best of two worlds: downside protection and upside potential. Decent pitch, different reality. ING's Principal Protection funds have the vast majority of their assets in bonds, not stocks. How are you supposed to participate in a move up in the market if the funds barely own any stocks?

Believing that doom and gloom will hang over our market and economy for decades also could send you running for investments that are patently ridiculous. Gold sure looked like a sure thing a few months ago. People were snapping it up as a haven for their money. So much for safety. Gold is down 14% since early February. Gold stocks have done even worse, falling 20% or more. And if you hold on to your gold for a few decades, you might be able to keep pace with inflation. That's it.

The real way to make money is to move against the crowd -- not with it. When everyone was dashing into tech stocks a few years ago, you'd have been better off buying bonds. Now that everyone is buoyant about bonds, it is the time to start looking at stocks.