The Power of Optimism

The White House recently announced that it expects the U.S. economy to grow by 3.1 percent this year, up from its 1.7 percent expansion in 2013. Is that a realistic projection, or an optimistic one? While the unemployment rate hovers in the 6.7 percent range, many economists say that rate has dropped recently in part because many people have stopped looking for work. That may be true, but it is certainly a pessimistic viewpoint.

[CLICK HERE to read the press release, “The White House has optimistic growth forecast for 2014, 2015,” at Reuters, March 10, 2014.]

[CLICK HERE to read the press release, “Employment Situation – February 2014,” at The Bureau of Labor Statistics, March 7, 2014.]

Recent research by an organizational psychology researcher at National Taiwan University reveals that while being optimistic is admirable, a more balanced blend of optimism and reality tends to yield the best results. In other words, continue to be optimistic if that’s your natural tendency, but make sure you’re viewing all aspects of a situation – both the positive and the negative. By the same token, people who tend to be pessimists can work themselves into a depressive state if they don’t keep a careful watch out for silver linings.

The study categorized optimists into two camps: Realists and Idealists. Not surprisingly, realistic optimists tend to be not only more successful, but also happier.

[CLICK HERE to read the article, “This Personality Type is Linked to Success and Happiness,” at The Live Science, Aug. 23, 2013.]

The “realistic optimist” may be a good approach to managing finances. Whenever we invest our money, our expectation is that we will receive positive returns. However, many successful investors have an actual benchmark in mind at which point they will sell or reduce their position. This illustrates both dispositions – optimism that the investment will return anything at all, and a realistic expectation that returns are not likely to be boundless.

[CLICK HERE to read the article, “Do Optimists or Pessimists Manage Their Money Better?” at Yahoo Finance, Feb. 3, 2014.]

[CLICK HERE to read the article, “Optimism Declines as Investors Fret over Stock Valuations, Economic Expansion,” at Forbes, March 21, 2014.]

One couple uses a unique approach to optimizing their basic dispositions. Cathy Trenton of New York State is in charge of research and analysis, deciding where to invest the household portfolio. Her husband, Stephen, decides when to sell their holdings. You could say Cathy is the optimist, picking investments she believes will deliver a return on their money. Stephen would then be the realist, selling when he thinks a particular investment has run its course. Having successfully combined their unique skills and dispositions for the last seven years, it sounds as if both of them have a realistic take on their respective roles.

[CLICK HERE to read the article, “The Married Couple That Trades Together,” at Fidelity, March17, 2014.]

Regardless of your disposition, many people may be able to benefit from working with a financial professional who has a realistic perspective of the financial services industry. If we can help you develop a more realistic outlook regarding your financial future, please contact us.

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This information is not intended to provide any tax, legal or investment advice or provide the basis for any financial decisions. Be sure to speak with qualified professionals before making any decisions about your personal situation.

The information and opinions contained herein are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. It is given for informational purposes only and is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.

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