Since joining the Motley Fool I've had the pleasure of discussing investments with many friends, colleagues, and relatives. During the course of these discussions, I think I've discovered the main stumbling block in getting the average investor to think truly Foolishly. It's the concept of risk.

Explain to a 45-year-old physician that using a Beating the Dow approach, one would have averaged twenty percent or more annual returns, and he'll shoot right back, "But in 1990 the market fell and Beating the Dow lost 19%. And look what happened to the market in 1973 and 1974. Crash! And in the 1960s stocks in general, and Beating the Dow in particular, didn't fare very well. Furthermore, the market has gone straight up in the last two years and inevitably it's going to go down, so why should I start investing now? My broker told me that Muni Bonds are paying a guaranteed 6% tax free."

Many potential investors have been paralyzed by the fear of losing money and the risk of stock investing. Sometimes this fear can have a positive role in counterbalancing the emotion of greed. But the key to risk is the understanding of basic probabilities and the concept of "the long run." One of the better analogies for demonstrating this risk is in Ken Uston's book, Million Dollar Blackjack. I've modified the model slightly to better fit the world of Wall Street.

Imagine you're given a sack full of 100 jelly beans, some black and some red. Blindly you choose a bean. If the bean is black, you've made a hundred dollars; if it's red you've lost a hundred dollars. Every weekday (excluding national holidays) you reach down into that sack and pull out a bean. Chalk up a C-note for a black bean, but lose one if it's red. Replace the chosen bean at the end of the day and start again fresh the next day. Do this daily for one year and total the daily results at the end of December.

The key to understanding this exercise is that, when investing in the market in general and an approach like Beating the Dow in particular, that there are more black beans in the bag than red. To use another gambling metaphor, the cards are actually stacked in your favor. Since the market has gained on the average about 11% a year for many years running, and Beating the Dow approaches have gained upwards of 20%, that sack of 100 jelly beans might contain about 55 black beans in a game in which one invests in an S&P 500 index mutual fund and maybe 60 black beans for a game of Beating the Dow. (Note that although this seems like a simple game, the actual calculations for the correct bean mix are fairly complex; I leave it up to those more gifted and interested than I to come up with the accurate bean mix).

Using this simplified model, after the daily random choosing of the beans, there are days when you're going to be ahead and days when you'll be a loser. In an individual day or week, it might seem very close to an even proposition if you win or not, and there may be wide swings in your results. However, the critical concept is that over a year the preponderance of those black beans will more than likely put you ahead. In the long run (that is five, ten or twenty years or more), the chances become overwhelming that your inherent advantage will overcome the short-term possibility of losses.

Since 1952 the stock market (that is, the S&P 500) has dropped in 10 of 45 years, or 22% of the time. But in any of 41 five-year stretches since then, the market fell in only two, or 5% of the time. And if one kept one's funds invested for a decade? Not once in any 10-year stretch (of 36 considered) would one have actually lost money.

So is the market risky? If you play the bean game for one day, one week, or even one year at a time, no doubt the answer is "yes." Rarely should you invest money that you will need in less than five years. But why not sit back for a decade or two, relax with Beating the Dow or another high-yield strategy, and watch those black beans tumble out of the bag, year after year after year?