The importance of optimism when you invest can’t be overstated. In fact, it’s scientifically supported that having an optimistic mindset helps you build wealth! A study done by Michelle Gilean in partnership with Frost Bank showed that 90% of optimistic participants put aside money for a major purchase as opposed to 70% of the pessimistic participants. Additionally, two thirds of optimists had started an emergency fund while less than half of the pessimists had one. 

But things like emergency funds are for when bad things like illness or accidents happen, right? Counting on the worst situations to occur is the hallmark of being a pessimist! So why would optimists beat out pessimists in this area? Because contrary to popular thought, optimists actually don’t see the world through rose-colored glasses.

Being optimistic means that over time you believe your investments will work out and there will be growth, which, in practice, isn’t as pollyannaish as it sounds. Being ruled by fear causes you to act in a way that could mean you are not taking the risks you need to grow your wealth. You’ll continue to protect yourself, but you don’t act in ways that are growth-oriented. Consider this: Having something like an emergency fund would actually make you feel more secure about the future, knowing you’re prepared for a financial hit, instead of worrying about the worst outcome (going into debt, losing your house, not being able to feed your family). When you feel secure about the worst case scenario, you’re free to make other financial decisions that involve more risk and reward, like investing in the stock market to grow your wealth.

Think of optimism as a catalyst, like turning on the stove while you’re cooking. If you just have food in the pan, but no fire, your food isn’t going to cook. Optimism is that fire that can bring all your ingredients together, simmering and melding your ideas into one delicious (and prosperous) meal. 

So, why is being optimistic when you invest important?

I drew inspiration about optimism from The Psychology of Money by Morgan Housel. Housel talks about the “seduction of pessimism” and how it’s easier to follow. Being pessimistic feels more logical: nothing will get better after the Great Recession. The economy will take decades to recover from the pandemic. We’re heading for another market crash. More negative events tend to be more present and easier to spot—and make us sound more authoritative. 

Progress happens too slowly to notice right away. Housel encourages us to look at the big, historical picture: “The Historical odds of making money in the U.S. Markets are 50/50 over one-day periods, 68% in one-year periods, 88% in 10-year periods, and (so far) 100% in 20 year periods. Anything that keeps you in the game has a quantifiable advantage.” 

Even if you have the worst luck and are always investing at the top of the market, playing the long game will still make you money. 

In fact, investing at the top of the market isn’t always a bad idea! A recent report from JP Morgan looked at the past 30 years of the stock market and compared the average returns of investing any day at random since the start of 1988 with the returns to investing only when the stock market is at all-time highs. They found that the returns 1, 3 and 5 years out were better on average investing at all-time highs than any other days. As an investor, that information is certainly something to smile about.

Read More: Should I Invest Right Now?

Your mindset about money

So how do you apply this optimistic outlook to your own mindset about money? Here are a few ways:

Talk about money

Optimists don’t let money be taboo. They talk openly about it, asking questions, and seeking out new information that could help them with their financial goals. If you’re more open to talking about money, you’re likely to listen to a financial advisor or expert who can steer you in the right direction. Ultimately, you’ll learn how to better manage your money and, therefore, make more of it!

Read More: Your Relationship With Money

Have a strategy

You have to have a financial strategy that allows you to remain optimistic and works for you. And to feel optimistic, you have to feel secure and protected, i.e. have a safety net. So what does your safety net look like? If scenario A happens, like an accident, are you protected by something like disability insurance? Or in the case of scenario B, like a job loss, do you have an emergency fund to fall back on? When you concretize the likely scenarios and have a plan to address them, you’ll feel better and therefore more optimistic about your ability to face financial challenges.

Read More: How to Build Wealth, Debunking Some Myths

Save like a pessimist

I know you must be thinking, “Wait, I thought we were talking about optimism here?” I assure you that we are, but none of us are optimistic all of the time. It’s just not part of our human instinct for survival. Pessimism has its place and its benefits. In the case of building wealth, saving like a pessimist is actually the best strategy, because it means you save heavily. Of course, you have to balance that with your other financial and life goals. Don’t sink all your money into savings, but sink enough so you feel prepared for a worst case scenario.   

Most often, our outlook can be expressed with what we do with our money. Do we hoard it and only buy the safest things, leaving the money in our savings accounts or do we invest it? In other words, are we investing the money in ourselves and our future? I’ve found that those who are more pessimistic in their outlook when investing (generally a very smart idea, by the way) are constantly looking for the next shoe to drop, but missing out on opportunities for growth. Take stock in your mindset and look for ways to cultivate optimism. The outcome will be greener for it. 

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