In this month’s edition of “Money Matters,” Scott discusses the psychological components of a successful financial future and why having an optimistic mindset is an important part of your financial planning process.

Money Matters: Optimism & Your Financial Future Transcript

0:00:00.7 Mark: WTIP is pleased to bring you another edition of Money Matters. A monthly feature intended to help us understand more about managing our finances. Scott Oeth is a Certified Financial Planner and adjunct professor. He's taught hundreds of financial professionals about retirement planning and wealth management strategies. Scott joins us now by phone. Welcome, Scott.

0:00:20.4 Scott Oeth: Good morning, Mark.

0:00:22.5 Mark: Little Bobby McFerrin, don't worry, be happy there.

0:00:25.6 SO: I love it.

0:00:26.9 Mark: Our subject today is?

0:00:31.1 SO: Yes, Optimism Pays Off. I think we've talked a number of times in the past, Mark, about things that might sound a little bit more negative. Concerns about build-up in tech bubbles, and we've talked about insurance for things that can go bad. We talked last month about diversification and preparing for the worst, then I definitely believe you wanna play a very strong defense. You wanna make sure, financially, you're not just building a house of cards, but you're also protecting it and that you're making reasonable and prudent projections in getting good advice or doing your research there. But boy, there's a whole lot of benefit to being an optimist when you're thinking about your financial future.

0:01:12.6 Mark: But with all the bad news in the world today, every day you think about, "Should I be doing something different with my money?" You advocate cultivating an optimistic outlook.

0:01:24.5 SO: Yeah, there is so much focus on the negative, that's what captures headlines. And there are a lot of problems, they're all things we need to work on, but in so many ways, things are getting better, especially if you look at the world at large and some statistics I just can't help but avoid. In 1980, according to the World Bank, half the world lived in extreme poverty. And that number's now well less than 10%. In fact, the Brookings Institute has looked at this and they say, "Half the world's population is now middle class." If we go back to 1980, especially as our viewpoint here, we wouldn't have been particularly optimistic. Things looked pretty bleak. We had double digit inflation. We had very high unemployment. We had very high interest rates. There's a terrible cold war going on between the east and west, and here we are, things are much, much better. And it's many areas. Literacy is better. Life expectancy is much better, living conditions, child mortality rates are down, violent crimes down. Medical care is much better.

0:02:24.5 Mark: How do you see optimism paying off financially, say, for individuals or families?

0:02:30.9 SO: I think it can pay off in many ways, as long as they are realistic expectations in optimism and not blindly putting faith in the future without some real reality there. But the good news is the reality is awfully good. But there's a researcher from the University of Pennsylvania, Michelle Gielan, and she wrote a piece in the Harvard Business Review called The Financial Upside of Being an Optimist. They found that when it comes to money, optimists are more likely to make moves and reap the benefits. A few of the key points I saw in that piece, she says that 90% of optimists have money set aside for future major purchases, compared to only 70% of pessimists. Two-thirds of optimists have an emergency fund set up, and it's less than half of pessimists. And I think probably the most important thing, the one that really grabbed me is how you feel, how you feel about your financial well-being. We've talked about this a bit before in the past, but she says that based on their large study, folks were pessimistic. 145 days out of the year, they feel stressed about their finances compared to optimists. So over half the year they're feeling worse, versus some of the more optimistic outlook.

0:03:43.1 Mark: We... Go ahead.

0:03:45.7 SO: Yeah, you do a lot better in your career, more likely to make more money and to be promoted.

0:03:49.2 Mark: We have 28 days, I believe, until the elections. I imagine you have some investors who are concerned about the outcome of the election and the politics that are going on right now and how it affects their finances?

0:04:01.3 SO: Yes, it seems everyone's concerned. Everyone is worried that if those bozos on the other side win, it's all going down the tubes. But the problem is, it's about half and half as usual. Each side thinking the other is the one they are gonna bring about ruin. Here's, I think, the really important thing. We know, we can look at fund flows, people often move to cash leading up to election. They sell out of their investments. They abandon what would be good investments and they park it in cash, because they're concerned about the future. And typically, markets are more volatile leading up to an election. But that's usually a bad move. It very rarely worked out. If you look at the last 20 election years, so this is going way back in time, there's only been two election years with negative returns, they're overwhelmingly positive. And out of that, going back to 1933, equal number of Democratic and Republican presidents, so we can look at it and say, stocks have gone up over that time, and do you even remember who was in office when you had those gains. Your stocks went up under Carter or Reagan, Bush, Clinton, Obama and now Trump. And there's just a big risk in missing the upside that comes.

0:05:16.6 Mark: So for those investors that are concerned, what should they do? What should they be taking a look at? What should they be reading? And maybe, who should they talk to?

0:05:27.6 SO: Well, as always, I think, a good expert advice individualized to your situation makes a lot of sense. So finding a good certified financial planner, something like that, who can help you out. There's wonderful resources for folks that wanna dive deep and do this themselves, so there's a lot of information. There's also some bad information out there, but preparing for the near term, giving yourself a cushion so you can ride out stock and bond market volatility, is very important. So make sure you have that savings account. Make sure near-term purchases, things you wanna spend money on in the next year or two, are insulated from stock market risk. That gives yourself a lot of breathing room to let the market go through its gyrations and let you keep a longer term focus, which is really key to investing. I wrote a piece I published on my blog about the Stockdale Paradox. Stockdale was shot down during the Vietnam War, and his mindset that helped him get through a POW camp, and I relate that to investing and I think it's important. So there's a number of wonderful pieces if folks wanna email me, I'd be happy to send them to them. But insulating yourself from short-term volatility and keeping a long-term focus is key.

0:06:39.7 Mark: And I've noticed that the investment companies do send out really good articles and information presenting a lot of the sides of these things too. It's just a matter of spending some time reading them.

0:06:51.6 SO: Yeah, there's a wealth of information. We are in the information age and there's a lot of great stuff out there. I think maybe a matter of curating it and finding what works for you and what your financial goals are.

0:07:05.4 Mark: We are talking with Scott Oeth, and we'll be talking finances with Scott in the first Wednesday of the month on North Shore Morning. Scott, this is great talking to you. I feel a little calmer already this morning. Is there anything you'd like to add?

0:07:19.8 SO: Very good, glad to hear it, Mark.

0:07:21.5 Mark: Thank you very much for talking with us today.

0:07:24.1 SO: Take care. Thank you.

0:07:25.1 Mark: Alright.