The Importance of Optimism in Investing
There’s something about summer – the warm days, the lingering feeling of holidays even after you head back to work and those long nights that just make you feel good. Summer just seems to be infused with a strong sense of optimism. And this feeling of optimism is something we could all benefit from by applying it to every aspect of our lives, including the way we approach money.
The positive psychology and happiness movement has been the subject of intense research among social scientists for the past decade. The research shows that when you have a positive mindset you are wiring your brain for positive experiences and opportunities, which means that you are more likely to find beneficial deals.
When it comes to finance and investing, if you have an entirely negative belief system or approach, then your decisions will be peppered with fear and doubt, which means you are more likely to freeze and do nothing (which is never a good idea when it comes to investing and saving) or you might make decisions that are unnecessarily conservative and not in your long term interest.
In the book Emotional Capitalists: The New Leaders Australian psychologist Dr Martyn Newman says optimism is a key indicator for success in many areas of life, and that optimists tend to make much more money.
He writes: “Optimism and resilience in the face of adversity are the greatest long-term predictors of success for individuals and organisations. An overwhelming body of research demonstrates that optimists perform better at work, regularly outperform the predictions of aptitude tests, have greater resilience to colds and other illnesses, and they recover faster from illness and injury. Optimists also make considerably more money.”
On a larger scale, looking at the economy as a whole, the Reserve Bank even issued comments during the midst of the global financial crisis that the biggest mistake we could make as a nation would be to talk ourselves into economic weakness. The governor of the Reserve Bank urged Australians to: “Go forward with some quiet confidence in our own abilities and in the opportunities that are on offer.”
Of course, there is a very important qualification with optimism that it must be done in a realistic way. It’s definitely not about taking a “she’ll be right mate” attitude that Australians can be famous for then blindly crossing your fingers. Instead, it’s about being open to considering opportunities, and then assessing their merit in a logical and realistic way. The point being that having that positive outlook in the first place is the way to bring more opportunities for you to consider.
One of the cornerstone principles of investment is that of risk and return. This tells us that the higher the expected rate of return on your investments, the higher the risk that things might not work out as you hope. But if people didn’t start out with an optimistic attitude about how this trade off might work, then perhaps no-one would ever invest in anything other than the lowest interest (and very secure) bank cash deposits, and who would ever be brave enough to take on a home loan – just in case the housing market plummeted or interest rates soared.
When it comes to your own financial situation, here are some tips for helping you to look on the bright side.
Tips for being realistically optimistic in your investments
Look at the benefits
When you are looking at different financial products or offers, approach your decision-making with an attitude of “How will these various options benefit me?”. For example, if you’re thinking of taking on a home loan with this attitude, you might focus on the fact that you will be building up a strong asset base, that you’re building financial security for yourself and your family, and that the loan will help you stay motivated to channel money into investments rather than spending it on depreciating consumables.
Be realistic
While the best starting point is being optimistic, you should do this in a way that is realistic about the obstacles and challenges, because if you try to pretend they’re not there you’re setting yourself up for failure. For example, if you’re applying for a credit card and you can get a $10,000 limit, ask yourself if you are going to be disciplined enough (in a realistic way) not to max out your credit card. Or if you are taking a home loan, make sure you have some buffer room or take out a fixed loan so you know you can handle it if interest rates rise or housing prices fall.
Stop worrying
Worrying is a huge time waster – it can consume weeks of your life and put wrinkles on your brow. Once you’ve been realistic, and thought about the things that might go wrong, put a plan in place for how you will deal with setbacks in the unlikely event they do happen, then put them out of your mind and only focus on the things you can control.
Being optimistic means your antennas will be up for more opportunities and that you will be motivated and inspired to get out there and find out how to make things happen. With a positive mindset you can do your research to compare different home loan products and refinancing offers, and then use your discernment to pick the opportunity that will best serve your interests. It’s enough to put a smile on your face.
Related posts:
- Procrastination in saving and investing
- Check Your Cash Flow Before Investing
- What to consider when Investing Interstate
- Smooth Property Investing for Rough Times
- Investing in Property
- How to Find a Positive Cash Flow Property
- Length of Mortgage – 10, 20 or 30 Years; Which One Is For You?
- The Importance of a Strong Credit History for Your First Home Loan
- St.George Portfolio – Home Equity Loan (Advantage Package $250K plus)
- Money Strategy Using A Shoebox And The Internet
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