Maintain Optimism during Economic Headwinds

It is interesting how quickly the primary focus of many market commentators can shift as they look for things to worry about, perpetuating a pessimistic narrative about market fluctuations.

Today’s Economic Headwinds

A major change in global trade continues to dominate the news as the U.S. imposes tariffs globally. At home, Canada remained side-lined in NAFTA negotiations throughout the summer and the Trans Mountain pipeline project continued to experience setbacks. Italy’s ongoing debt issues, complicated by new political changes, as well as Turkey’s currency and debt crisis have been a focus; all of which have kept investors on edge.

This is not to say that today’s economic headwinds should be ignored. But think about just how much opportunity would have been missed if you followed the underlying pessimistic narrative of recent times. For years, the media has been claiming that equity markets have reached their peak.

So, Why is Pessimism so Seductive?

Being pessimistic is innate: Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce. A Harvard study showed that pessimism is perceived to be more expert, intellectual and competent. Daniel Kahneman, who won a Nobel Prize for his work on cognitive psychology, showed that people respond more strongly to loss than gain. Optimism often means staying the course, which can appear oblivious to risks. Pessimism requires action, which appeals to human nature because we are more inclined as a species to act than wait.

Being an optimist doesn’t mean believing that short-term setbacks won’t happen. After all, financial and economic markets are cyclical by nature. But what looks like tomorrow’s problem often is not the real issue when tomorrow rolls around.

Economies have proven remarkably resilient over time and the future is likely to be no different. We often underestimate our ability to adapt: people, businesses and economies move on from even the toughest setbacks.

How can Investors Keep Perspective and Face Pessimism?

One way to keep perspective is to step back from the headlines. Focus on your end goals, not the news of the day. Continue to save and invest steadily for the future. Leave the worry over day-to-day developments to those of us who oversee your investments.

Equally important, invest confidently with long term objectives in mind. Your portfolio is being managed with the expectation that markets will experience both ups and downs. Remember that patience, along with time and the virtues of compounding, are likely to be some of your greatest allies.

 

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