Investing can be complicated, so let me share a simple philosophy: Save your money like a pessimist and invest your money like an optimist.
Save with the idea that the world breaks every few years — a recession, a pandemic, a terrorist attack. These events rock the economy and crush the stock market. It’s been like that forever and it’ll be like that forever.
The only way to endure that world is to save like a pessimist: keep a big emergency fund, avoid too much debt, and always have a backup plan.
Assume that something terrible is around the corner because, let me tell you, that’s often the case.
… invest your money like an optimist.
Invest knowing that if you can endure the short-term chain of financial disappointments and setbacks, things usually get better. People are good at solving problems and becoming more productive. We rebuild. We’re amazing at innovating.
Saving like a pessimist is what lets you stick around long enough for your long-term investments to actually grow, compound, and benefit from society’s progress.
I always think the best answer is a little of both: pessimistic in the short run, but optimistic in the long run.