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Long-term financial success is as much about what you avoid as it is about what you do. There are always twists and turns along the road and there will be times you are tempted to react emotionally to potential dangers ahead. Whatever you do, however, you need to stay out of the "crazy car."
It’s easy to worry about lots of “crazy” things, but it’s wise to step back for some perspective. As Nick Murray says, “Optimism is the only realism.”
By optimism, I don’t mean an unrealistic view that everything will always be wonderful. Instead, I am referring to the viewpoint that the probabilities largely favor positive long-term outcomes.
Why Pessimism Dominates the News
It’s undeniable that pessimism is more common than optimism, particularly among the financial “news” bunch. The cacophony of pessimism often drowns out optimism. Like it or not, many investors find pessimistic themes engaging.
What is usually left out of the pessimistic chatter is the fact that markets adapt, economies adapt, and people adapt. Extrapolating something negative today years into the future without this adaptation response presents a false narrative.
Making good money decisions is more like a wrestling match than a dance. Adversity and unexpected outcomes are part of the mix. Just being agile and limber isn’t enough. You have to be mentally and emotionally aware. Optimism and pessimism play a role.
You can dream up all types of financial strategies that have little or no application to your circumstances. You can consider making massive changes to your portfolio because of constant financial media fear-mongering. Avoiding these possibly lifestyle-altering mistakes keeps you out of the " crazy car.”
What’s Your Story About Tomorrow?
Deciding to get into the "crazy car” or not depends largely on your story about tomorrow. Are you hopeful and confident or fearful and nervous? Optimistic or pessimistic?
Emotional blind spots are often to blame for creating the environment that drive people to the "crazy car.” Nature designed emotions to produce rapid responses to immediate threats. Emotions, however, aren’t a reliable basis for making good long-term financial planning decisions.
Yet, most financial choices are driven by emotions. Rationality is just used to explain the decisions.
The line between unbridled optimism and pessimism can be faint at times. Keeping emotions out of the decision-making mix is a tall order. Avoiding the big mistakes is key. That’s where we come in. We bring experience, perspective, and discipline to the mix.
Related: How Investors Can Think Clearly in a Cloud of Clutter