Save like a pessimist, invest like an optimist

Morgan Housel’s simple philosophy on how to save and invest.

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 like a pessimist, invest like an optimist

What does that mean?

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.

But at the same time…

… 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.

Are you an optimist or a pessimist?

I always think the best answer is a little of both: pessimistic in the short run, but optimistic in the long run.

New call-to-action
Topics: Finance

Related Articles

Get the 5-minute news brief keeping 2.5M+ innovators in the loop. Always free. 100% fresh. No bullsh*t.