Why optimism is the key to successful investing
Where do you sit on the optimism scale? Here are three questions to help you find out:
1. England are playing New Zealand in the Rugby World Cup final. How do you think it will end?
a) Catastrophic failure.
b) No shame in losing to the All Blacks.
c) They’re bringing the trophy home!
2. You’re on the Great British Bake Off. How confident are you about the result?
a) Burnt on the outside, raw in the middle – heading straight for the bin
b) A bit stodgy, but good enough.
c) Fantastic. Worthy of a Paul Hollywood handshake.
3. You’re tasked with finally putting that picture on the wall. How do you think it’s going to go?
a) The whole wall will probably fall down
b) A bit wonky, but no one will notice
c) Easy peasy - should have done it ages ago
If you answered c) to all three, maybe you’re one of life’s eternal optimists.
That’s mostly a good thing. Research says being an optimist helps us sleep better, feel less stressed, and even live longer.
But when it comes to planning our finances, in my experience, there’s still a lot of pessimists out there.
They worry they haven’t saved enough, and often underestimate how many years they’ll have to enjoy themselves in retirement. Many people are only looking ahead to seventy plus, when they’re far more likely to live into their eighties or nineties.
This attitude has a big impact on how we save. It makes us more prone to worrying about short-term issues and market volatility, because we think there’s less time for our savings to recover, when actually what we need to do is take a step back and think about the long term.
Of course, telling someone “Be more optimistic,” is about as helpful as saying “Cheer up, it might never happen.”
How to take control
So how do we go about injecting a bit more optimism into our lives? For me, the most important factor is gaining agency. Taking control, feeling like you have more autonomy, can make you feel happier and less powerless against outside influences.
It’s a decade since Australian author Bronnie Ware published The Top Five Regrets of the Dying. According to her, the more common deathbed refrain was “I wish I’d had the courage to live a life true to myself, not the life others expected of me.”
I see financial independence as the ultimate opportunity to gain agency. So how do you get this? You get this through having a plan.
A financial plan designed to be independent of outside events; it’s there to protect your future as much as possible, to give you a robust solution and timeframe in line with your own personal circumstances, risk appetite and future goals. Yes the markets have an influence to an extent, but they shouldn’t control things such as when you retire for example – that should be built into the plan from day one.
We want your retirement to be on your terms, not reliant on an inheritance, or the sale of your business, or on the actions of a brutal despot 2,000 miles away.
The marathon analogy
I think of the financial plan a little like training for a marathon. I last ran one in 2017 and there’s a lot of preparation that goes into running those 26.2 miles.
You need a training schedule and a race plan, but one that’s designed to suit you, not Mo Farah, otherwise it has no hope of working. It needs to work with your history, health and age in mind, but it also needs to be flexible enough to account for unforeseen events.
Then on the day, you have to pace yourself, don’t try to do too much too soon.
And remember we are all running our own race, don’t panic when overtaken by a sprightly 21-year-old club runner (or, indeed, a rhino wearing a tutu).
The value of ongoing advice
But here’s the thing about that analogy.
Following a plan helped me get over the finishing line five years ago.
But this time around, as I prepare to shuffle around London in October, things are different. I’ve run less intensely for the last five years. Maybe if I’d been more disciplined with my trips to the gym and longer runs instead of jogs round the block, this marathon wouldn’t need quite as much preparation. But it is what it is, and I’m looking forward to crossing the starting line.
Likewise with your financial plan, as circumstances change five or 10 years down the line, it’s easy to fall into bad habits or lose sight of the end goal – in this case, being overly pessimistic and worrying too much about the short term can damage what you achieve in the long term.
Making the most out of your plan
And this brings us back to my original point about optimism.
You’ll hear from experienced runners that the real ‘halfway point’ in a marathon isn’t at 13 miles. It’s actually around mile 20. That’s because those last six, take as much effort as everything you’ve done up to that point.
We can look at your financial plan – and the rest of your life – the same way. There’s longer left to go than you think. Just because you’ve hit a bump, doesn’t mean the whole thing has gone to pot. And, if you take a step back and let yourself see the bigger picture, there’s plenty of life to experience yet.
One of the things I take great comfort in is that my clients continue to seek advice from me. That tells me they’re optimistic, not putting their heads in the sand. And that means a much better chance of making it to the finish line in good shape.