Adriaan Pask | Chief Investment Officer | PSG Wealth | mail me |
Positive beliefs drive very healthy money habits. According to large-scale US studies done by Gladstone & Pomerance, optimists save 20% more than other investors. This trend holds true regardless of income status.
Optimists are also more likely to invest for the long term. These findings highlight the power of a positive investor mindset.
An optimist’s mindset is characterised by a positive outlook on the future. For investors, this translates into a willingness to think long term. As a result, they are well positioned to build and accumulate wealth. The idea is simple.
A greater tendency to invest in retirement
Someone who is pessimistic about the country’s outlook is unlikely to invest in something they believe is tied to that outlook. Conversely, if you are optimistic about the future, you are more likely to take a long-term view and invest in that future.
According to the study, which surveyed 143,000 people across demographics and income levels, optimists show a greater tendency to invest in retirement vehicles such as RAs and pension funds.
Similarly, the studies revealed that positive people generally have better money habits. They are more inclined to budget, enrol for automated savings such as debit orders or contribute to pension and retirement funds.
Interestingly, the research shows that the behaviours of optimists across demographics and income levels are superior to those of even wealthier pessimists. A strong investor mindset helps explain why these differences exist.
Optimism and resilience in times of stress in the markets
When times are tough, saving and investing are often the first areas to take a knock as people prioritise expenses. However, for investors with a positive outlook, optimism acts as a fuel or a buffer when finances are constrained.
The Gladstone & Pomerance survey shows that a positive outlook fosters resilience in saving habits, even during periods of hardship. Optimistic participants kept saving, stayed committed to their plans and maintained their automated contributions. This reflects how strongly they value the importance of saving. Importantly, optimists view hardship as temporary, whereas pessimists tend to view it as permanent.
The recent and ongoing tariff war serves as an example. Optimists see this volatility as a temporary hurdle. They trust that the assets they invest in or the managers they use will shield against such challenges. As a result, they do not panic. Pessimists, however, display fragility that causes an overly risk-averse reaction, sometimes even leading to disinvestment.
This failure to see the long-term results in two mistakes: a market-timing mistake and a financial discipline mistake. These investors disrupt their own savings routine. This is potentially self-destructive from a wealth-generation perspective. Investors are much better served by continuing to save. Even if the anticipated market turbulence occurs, it is likely to be short-lived and portfolios will recover. Yet, recovery is only possible if you remain in the market in the first place.
That resilience, therefore, serves optimists very well, and it becomes a positive cycle. The more optimistic you are, the more resilient you become. In turn, the more resilient you are, the more it fosters further optimism and resilience. A strong investor mindset reinforces this cycle, helping long-term wealth creation.
Do optimists end up wealthier?
Investment outcomes are largely impacted by behaviour. If two investors invest in the same asset, their interaction with that investment ultimately decides whether they succeed or not.
Generally, if you stay invested in the markets, do not worry too much about volatility, and accept that equity markets will go through tough patches, you will see the fruits of your resilience.
Continuing to save as you always do is key. This discipline is closely tied to an optimistic investor’s ability to adopt a longer-term view and, as a result, take on more risk. However, if market turbulence causes you to pause contributions, the impact on your savings can be detrimental. Poor investor behaviour significantly deteriorates prospective returns.
Reasons to be optimistic in today’s market
Investor optimism in this context is tied to personal wiring, specifically how you deal with adversity and disruption. Certain areas of the current market highlight how different investors may approach situations.
Take global equities as an example. Despite debate around US valuations, global equity markets remain resilient. There are pockets of attractive opportunities. In this context, a negative investor might believe the US markets are expensive. They may therefore decide to disinvest until a crash occurs. Timing the market this way is extremely difficult.
The optimist, however, may reason differently. They might say that because the US portion of their portfolio looks stretched, they will look for opportunities in emerging markets or developed Europe. The approach is fundamentally different.
Optimism needs to translate into lasting behaviour, despite the current market climate. It is the way you think about money and the way you think about creating wealth. Your default position should be one of optimism. Over the years, that optimism will serve you well as you build wealth for the long term. Maintaining a strong investor mindset ensures that optimism translates into action and long-term results.
