Investing Optimist or Pessimist?

Video Transcript

Recently, I was asked is it better to be an optimist or a pessimist when it comes to investing. Is it better to act as if everything is going to work out in your favor? The money you put into these accounts will grow and do what you need it to do, or should you be bracing for the worst-case possible scenario? And my answer was I really don't think one is better than another.

I really like to be both an optimist and a pessimist at the same time because to invest is to be an optimist. You are very hopeful that the money you put into these accounts will grow, and do what you expect it to do. So that way you can reach your goals.

But the pessimist in me knows that there's always some risk involved when it comes to investing. There's no risk-free investment out there and for this reason I don't rely on one individual company or one specific investment to try and ultimately make me rich. Using things like target date funds or simple index funds that are available in your work retirement plans, they help you spread your risk out across hundreds or even thousands of different companies and investments. Meaning that you're not relying on one thing to determine what happens to you years down the road.

I want you to remember that the biggest impact on your financial life isn't going to be your ability to go out there and pick that one perfect investment. Because odds are you won't be able to do it, and that perfect investment probably doesn't even exist.

The biggest factor is going to be your ability to save and to continue to set aside money month after month, year after year, consistently. Because that consistency, and then spreading your money across many different investments, will completely negate whether you're an optimist or a pessimist. You're an investor and you're in this for the long run.