I have lost $300,000 in my 401k in the past 12 months, and things appear to be getting worse. I plan to retire in 5 years. Should I get my money out of the market or try to ride out the economic storms?
This question came just last week from someone I met in the airport while traveling to California. I tried to quickly summarize my view: “All other important investment factors being equal, I believe it is generally good to be optimistic and weather the storms.” She looked at me with shock because I think her mind was already made up that she wanted to cash out.
I replied that I believe that “time in the market is far more important than timing the market.” Since you may be asking the same question she asked me in a fleeting moment, I decided to make a case for remaining optimistic when it comes to managing your investments.
Is the Glass Half Full or Half Empty?
I recently read The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel. A partner at The Collaborative Fund (a network of fund managers), Housel believes that doing well with money has a lot to do with how we behave. His insight on the seduction of pessimism is excellent:
“Pessimism isn’t just more common than optimism. It also sounds smarter. It’s intellectually captivating, and it’s paid more attention than optimism, which is often viewed as being oblivious to risk. . . . Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. . . . It’s easier to create a narrative around pessimism because the story pieces tend to be fresher and more recent. Optimistic narratives require looking at a long stretch of history and developments, which people tend to forget and take more effort to piece together. . . . The short sting of pessimism prevails while the powerful pull of optimism goes unnoticed. . . . In investing you must identify the price of success—volatility and loss amid the long backdrop of growth—and be willing to pay it.”
There’s proof on the side of optimism. In 2019, Michelle Gielan wrote “The Financial Upside of Being an Optimist” for The Harvard Business Review. She conducted a study in partnership with Frost Bank, and after surveying more than 2,000 Americans, she found that when it comes to money, optimists were more likely to make smart moves and reap the benefits. In addition, optimists make more money over their careers and are more likely to be promoted. Here is an excerpt followed by some findings:
“After controlling for wealth, income, skills, and other demographics to level the playing field, the data clearly showed that optimists were significantly more likely to experience better financial health than pessimists, and engage in healthier habits with their money. For instance, we found that 90% of optimists have put money aside for a major purchase, compared to 70% of pessimists. Nearly two-thirds of optimists have started an emergency fund, while less than half of pessimists have. Additionally, optimists are more likely to seek out and follow advice from someone they trust. In my opinion, the most compelling finding was how optimists felt, reporting that they stressed about finances 145 fewer days each year as compared to pessimists.”
How to Become More Optimistic about Money
We, who are believers in Christ, can be optimistic because of the character of God. We can place full confidence in Him, regardless of our circumstances. We do our part in stewarding the resources He provides, and we trust Him to do His part, which is to work all things for our good.
“And we know that for those who love God all things work together for good, for those who are called according to his purpose.” Romans 8:28 ESV
Nobody knows if the market will go up or down over a 5-year period or a 24-hour period—whether there will be a market boom or a market bust. However, we know that optimism is good for us and those around us, regardless of whether the outcome we hoped for is achieved.
While trusting God in challenging times, remember to practice the following to develop a more optimistic worldview:
The Crown God Is Faithful devotional offers inspiring and practical Biblical wisdom. You can sign up to receive the devotionals daily to help transform your finances and provide some much-needed encouragement.
This article was originally published on The Christian Post on January 27, 2023.
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