I spend a lot of time here talking about risk management and avoiding investment pitfalls. I describe the climb to the top of the investment mountain as one that is strewn with loose rocks and dangers. I like to say “butterflies and rainbows don’t ruin your day” because the climber who spends his/her time focused on nothing but the beautiful scenery is bound to get tripped up. In the investment world, it’s the loose rocks that set you back. And as I’ve shown previously, the unfortunate maths behind investment losses can mean you literally lose years of your life’s savings due to these setbacks.
But there’s an even more important lesson here than the one involving risk management. You have to be willing to get on the mountain and actually make the climb. Standing there on the sideline watching everyone else climb, fall or reach the summit isn’t going to help you get there. You have to be willing to take some risks in the first place. And in order to to do so you have to have a certain level of confidence in your capabilities to get you to the top of the mountain. Whether you like it or not, that makes you an optimist.
I bring this up not because I am some sort of blind optimist, but because we remain in this post-crisis era where fear seems to rule every day and the end of the world is right around the corner. If it’s not the Euro crisis, it’s the fiscal cliff or the hyperinflation or the bond vigilantes or any countless other number of things that are going to destroy the world. But the truth of the matter is that the vast majority of the time the world is making progress.
Did you know that the US economy has been in expansion 84% of the time since 1945? That’s right. Whether the pessimists like it or not we’re still climbing that mountain. And there are going to be measured optimists who make it up there regardless of how scary the headlines are.
So the question is, are you willing to overcome the fear and put your climbing boots on? Or are you going to buy into the perpetual fear machine that is modern life? Just remember – should you choose to make that climb…butterflies and rainbows don’t ruin your day.