The Price of Pessimism

by Kyle Thompson, MBA, CEPA

I had a meeting with a prospective client a while back that I can’t stop thinking about. This story isn’t just about money and investing, it’s about how we approach life, and the real life costs of pessimism and negative thinking. This story is about Negative Nate.

Negative Nate was a pretty successful health care professional in his mid fifties and had over a million dollars saved when he came to me. That’s pretty damn good. But I felt like there was something more to his story. Our conversation went something like this-

Me- “Nate, I notice you only have 40% of your portfolio in stocks. That’s very conservative. Can you tell me more about that?”

Nate- “I don’t like the current political climate, and feel like the whole world is going to hell in a handbasket. I don’t want to take too much risk.”

Me- “So did you just change your allocation recently to reflect those feelings?”

Nate- “It has been like that for a long time. There’s just always some crisis that could spell doom for the markets.”

The truth is, Nate was right. In the last century or so, there have been two world wars, a decades long cold war, multiple pandemics, a currency crisis, multiple debt crises, civil unrest, terrorist attacks, a Great Depression (and a Great Recession). And on and on and on. No matter where or when you look, there is always something bad happening.

Yet despite that, the US stock market has managed to average over 10% in total annual returns over that time frame. $1 invested in 1922 would be worth about $34,000 today. Sure, there were lots of ups and downs, but if you didn’t expose yourself to the downs, you didn’t get to enjoy the ups either. In Nate’s case, he could have had more than twice the money that he did, and be that much closer to his goal of retiring at 60. I didn’t tell him this explicitly, because it would just feel like I was shaming him for his past decisions, but I did let him know that if he wanted to keep his conservative portfolio, he would have to work longer and save more of his income in order to afford his lifestyle in retirement.

And that is how I lost Nate as a client. I have no doubt that he found another advisor to smile and nod at his sentiment while collecting their fees, but I felt obligated to give an honest appraisal of his situation. It wasn’t his investments I had an issue with, it was the consequences of it. I wanted to see him spend more time with his family, give generously to the causes he cares about, and just have fun with life. By avoiding risk, he was also losing out on reward.

Life works the same way. If you don’t ask your crush out, you’ll never get married. If you don’t apply for that promotion, you’ll never get it. If you don’t get on the plane, you’ll never experience your dream vacation. Hell, if you don’t buy a ticket, you will never win the lottery!

I’m not saying that everyone should be invested as aggressively as possible; precautions should absolutely be taken. Wear your seatbelt, keep your eyes open, don’t drive on the wrong side of the road. But don’t let the fact that cars are dangerous prevent you from getting behind the wheel in the first place.

One of my favorite quotes that might just be internet lore goes something like this- “rather than asking whether the glass is half full or half empty, ask instead if there is room for whiskey.”

Half empty or half full?

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