Skip to main content
financial planning

TCFP84: Optimism vs pessimism

By 16th May 2022May 18th, 2022No Comments

Do we have to be either an optimist or a pessimist? Can’t we be both at the same time? In fact, isn’t that our natural tendency?

My football team are hopeless, I am not the least bit optimistic about them. On the other hand, my children are going great guns and will undoubtedly rule countries one day (perhaps by force!).

However, when it comes to money, investing, the economy, politics etc. it feels like you need to be either an optimist or a pessimist.

I think you can, and should, be both and that is a healthy position if framed correctly in terms of both the short- and long-term.

The short-term always feels uncertain, a crisis is always brewing. Do you remember a period of less than a year when everything was rosy? Send me your suggestions and I will reply with the crisis you forgot that was unfolding at the time.

Something bad or sad is always going on; in time me move on to the next bad/sad thing. In the long-term, despite all the short-term crises, the world gets healthier and wealthier.

It makes sense to me to be a pessimistic short-term but an outrageous long-term optimist.

Out work at TCFP bears this in mind. We acknowledge anything and everything can go wrong in the short-term. Therefore, we insist you give up some long-term growth by holding enough cash and bonds to cover the next three years expenses.

Doing so buys you the right to be super optimistic about the long-term. If we know you can survive the next three years COME WHAT MAY, we know you will reap the long-term rewards on offer.

We can only get to the long-term, where the odds are massively stacked in your favour, if we are pessimistic enough to survive the short-term.

This requires discipline though. The temptation is always to extrapolate today’s short-term travails into a long-term trend. That would be a massive mistake we must resist.

Being outrageously optimistic about the short-term leaves us vulnerable to blowing ourselves up. Being pessimistic about the long-term will leave us penniless.

So, do not feel bad about wallowing in pessimism in the short-term, it would be odd if we did not from time to time.

But do not let it last, remember to stand back and check out the long-term picture where everything just gets better and better.



Boring But Effective | Truthful, Helpful, Kind 

Leave a Reply