Financial Fears

Halloween is this weekend, so I figured I’d keep with that theme and write briefly about our fears surrounding finances. When it comes to money, people have a lot of worries. Seven in ten people are “somewhat” or “very” fearful of an upcoming recession and 37% of people admit to having nightmares about money. Money problems cause more fear than any haunted house or horror movie ever will.

It’s natural to have some trepidation about your own financial situation and about the future of the economy. This kind of fear is healthy and leads us to save and prepare for hard times. But when fear creeps in and paralyzes your decision-making it can cause inaction and keep you from building wealth.

When I look at the daily stock market and financial news headlines, I understand why someone would be anxious about the future. These depressing headlines are created to prey on our uneasiness and because they’re so prevalent, pessimism becomes the default outlook on investing, and the world, for many. Every day there’s more bad news and it seems like being a pessimist is the only logical stance to take.

“Tell someone that everything will be great and they’re likely to either shrug you off or offer a skeptical eye. Tell someone they’re in danger and you have their undivided attention.” - Morgan Housel

The most prominent place I see the allure of pessimism, aside from the financial industry, is in sports fandom.

Being a fan of a sports team is tough. If you’ve been a lifelong fan, chances are you’ve experienced your fair share of heartbreak. The nature of competitive sports is such that only one team can truly be happy at the end of the season, so there’s a lot of disappointment to go around for the rest of the teams. In order to cope with this disappointment and heartbreak, many fans turn to pessimism and low expectations.

If a fan goes into the season with low expectations then they can’t be let down. They expect the worst and if their team happens to have a successful stretch, they’re always ready to turn on them at the slightest sign of trouble.

The problem with being a permanently pessimistic sports fan is that it’s no fun. And sports are meant to be fun. Supporting your team through the ups

and the downs

are what makes it so worthwhile. The championship tastes so sweet because the past heartbreak and defeat were so bitter. While fans may think they’re protecting themselves from getting hurt, they’re really preventing themselves from deriving any joy from it.

While being a pessimistic sports fan may not have any significant consequences in your life, being a pessimistic investor will. It’s easy to be full of doubt about investing, but no one ever made any money doing what was easy.

In order to build wealth and grow your money, you’re going to have to believe in something. The very act of investing is an act of optimism. You believe that something will improve and increase in value. The historic upward trend of the markets is based on optimism toward the future. Pessimists sound smart, but optimists make money.

The following graph shows the growth of a dollar if it were to be invested in a global market index. It’s a good visual example of the benefit of ignoring scary headlines.

If every year when a new crisis emerged you became fearful and decided to cash out, you would have lost out on all of the growth that followed. Historically, the markets have rewarded those who maintain discipline and don’t let fear drive their investment decisions.

If you’re always afraid of what could go wrong, you’re going to have a really hard time growing your money. Don’t let your fears dictate your financial decisions. Fear of a housing or stock market crash, of an economic crash, or of an incoming president will prevent you from making smart decisions for yourself.

In order to reap the rewards of a well-executed financial plan, you’ll have to experience some downturns and economic uncertainty along the way. The ones who survive are the optimists, not the pessimists.

Thanks for reading!