Optimism vs. Pessimism. How Each Will Impact Your Next Investment

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Have you ever been asked the “Do you see the glass as half empty or half full” question when you were a kid? If you’re like me, you were annoyed to be psycho-analyzed about your outlook on life while you just wanted to quench your thirst. 

But today, we’ll dive into optimism, pessimism, and how you can harness both for your wealth. 

First, let’s get some definitions out of the way. An optimist is more likely to focus on the positive outcomes, and a pessimist is more likely to focus on the negative outcomes that will inevitably come up in life. If you need more details, look them up. 

Some studies show that being a pessimist can lead to more health problems, and that optimism influences better well-being overall. That’s all fine and good, but I’m a finance blogger, so I only have one question. 

Optimism vs. Pessimism. Which One is Better For Your Financial Future? 

Neither. 

An Optimist…

Is more likely to take risks, see the benefit of investing, and actually do something with their money by focusing on the positive outcome that it will grow. 

But…

They might ignore red flags and any writing on the wall when a financial decision is about to go belly-up. 

A Pessimist… 

Won’t take any crazy risks by focusing on the negative outcome that they could lose their money. So no, they’ll never see their investments disappear in the day-to-day fluctuations of the stock market or when a recession hits. 

But… 

Their investment tactics are probably just recommendations from their friendly banker, meaning their wealth is growing at a snail’s pace, and half of it is lost to bank fees. 

Am I an Optimist or a Pessimist? 

My friends would describe me as a card-carrying optimist, but in my financial decisions, I see myself as optimistically pessimistic. I anticipate bad financial times or situations and I’m prepared to pounce and take advantage of them (or at least sidestep them so that they don’t affect me.) 

There’s also a psych term – defensive pessimism – which is the closest definition of an optimistic pessimist that I could find: 

“The interesting thing about people who engage in defensive pessimism is that they tend to be quite dynamic and successful… They use the technique to motivate themselves to do the very best job they can.”

From Psychology Today 

I’ll get to the specifics of how this plays out in my financial planning later, but I’ll just say that being an optimist pessimist is like a mental cheat code in my investing that has served me very well so far. 

Maybe It’s Not So Crazy to Be a Pessimist These Days… 

If you follow other financial bloggers, especially on YouTube, everyone’s calling for the end of the world. Crypo’s having problems, housing market’s having problems, interest rates are rising, what the heck’s up with inflation, and the Fed seems to have lost control of… everything it ever tried to control. 

So being a pessimist is easy. Give up. Buy Gold. Sit on it. And yes, you’ll probably turn out better than the average Jo-Shmo who’s just flowing with the wind. 

But is being a pessimist, and doing the bare minimum because the future is doomed the right thing to do? Personally, I don’t think so. 

Read more:
Inflation, Hyperinflation, and How to Save Your Money from Impending Doom.
It’s 2024, And We Haven’t Even Crashed Yet. (The Real Holdup Of The Next Market Crash.)

So Why Is Everyone So Pessimistic? I Think It’s Science. 

Listen, it’s easy to be pessimistic, and over-focus on the bad outcomes and possibilities that life (and the financial world) has in store. If we think about it from an evolutionary perspective, while great risks led to great rewards, the downsides could be pretty catastrophic. It paid to be cautious. 

So a little pessimism is ingrained in all of us, but in the modern day, there are new social pressures to see the glass as half-empty. 

Negative Feedback Loops Are Everywhere

And they come at you through every screen you encounter. Seriously, negative news keeps people coming back. It’s part of their business model! Negative news gives you a more negative outlook… which leads you to check in on the news… and so on and so on and so on. A pessimist is born!

Honestly, being an optimist has to be an active choice. 

Focusing on the Negative Makes You Sound Smarter

Have you ever read a movie or a book critique? According to research, reading a negative review makes you think that the critic is way smarter than if the review was positive. Seriously, in one study the researchers just changed all the positive words to negative ones, and suddenly the test subjects thought the review sounded very smart indeed. 

This plays out in day-to-day life as well. If you decide to try something, (be it an investment strategy, a vacation destination, or a new job) just one negative comment will likely cause you to give undue credence to the critic and at least make you do a little extra homework. 

It’s Always Easier To Just Say “I Told You So” 

If you’ve grown up with nagging family members, you’ll know what I’m talking about. The smugness of getting to say “I told you so” when things don’t go as planned. 

But honestly, problems will happen no matter what. You just have to deal with them. 

So you can be the pessimist who says, “I knew something bad would happen, and I’m glad that I don’t have to deal with it” or the optimist who says “Now that I dealt  with that hiccup I can reap the rewards.” 

One’s easier. I get it. 

So How Has My Optimistic Pessimism Played Out in My Financial Planning?

TL;DR – I bought my first rental house 5 years after the 2008 collapse. (By the way, it was before I bought my house-house and shortly after getting my first job after graduating. ) That decision has fueled my whole FIRE journey, and you can read up on my whole portfolio.

Why do I mention this? Because this downturn, difficult as it was, created little opportunities for normal people like me to invest and create huge growth. A negative turned into a positive. 

Ever since then, I’ve become hyper-aware of how dips in the market, big or small, could be an investment opportunity, and I’m always sure to be prepared! 

Read more: How to Prepare For a Recession. 9 Steps to Come Out on Top

On top of that, whenever I do invest, I always make sure that I have enough liquid assets that I could cover losing a job, losing revenue from the investment, or needing some crazy repairs. That’s not to say I keep a 100K laying around, but I make sure I can make some quick moves to cover major expenses if needed. 

Basically, I stay prepared. 

Over-prepared. 

And What Does This Mean For You and Me? 

Perhaps it’s more effortless to be a pessimist, but I don’t like things that are too easy. Where’s the fun in that? 

I love to be optimistically pessimistic. Always look for the possibilities and the positive outcomes (but be aware of the negative ones so that you can sidestep them.) 

And yeah, when a recession happens, or the world breaks down a little bit in other ways, I know that I – and my readers – will be financially prepared. See, optimistic pessimism!

Read more:
11 Recession-Proof Businesses That Are Both Safe and Exciting
5 Recession-Proof Jobs, Careers, and Industries
Investing During a Recession: 5 Steps for STRESS-FREE Investing


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