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Reply to: It pays to be an OPTIMIST

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Replying to: It pays to be an OPTIMIST

It would not surprise you to know that wealthy people are generally happy optimists. Most of us would say that affluent people are happier because they are wealthy. However most of us would be wrong. Those who have achieved a measure of success in their lives have generally been optimistic and happy over their entire lives, even before they achieved success. This applies to people who have succeeded in a variety of areas including business, investing and sport.

A recent article in the Wall Street Journal (It pays to be happy, 4 January 2013) proves that people who are consistently happy with their lives typically earn more than unhappy people. Happy people earn R32,000 per year more than the average. So, happy people literally earn more and therefore have even more to be happy about. Those who are “profoundly unhappy” earn 30% less than the average. This shows that there is a link between wealth and happiness but the path to wealth starts by being happy not the other way round. Unhappy people are less likely to prosper in their careers and therefore are also less likely to earn more. The path to long term career success starts at an early stage of life, those who describe themselves as “generally happy” from the age of 18 to 22, tend to be more successful later in life.

I have always been surprised by how much more optimistic my wealthier clients are than those who are of average or below-average wealth. I used to attribute their positive outlook to the fact that they had more money to solve any potential problems but as I was wrong. When I started to ask my wealthier clients about their early lives, I was always surprised by how positive they were – even from an early age. They tend to have a natural belief in their ability and feel that if they apply themselves, positive results will follow even when they are faced with setbacks. This was particularly true for successful entrepreneurs.

When you ask these entrepreneurs what made them successful, many of them attribute their success to perseverance. It is highly unlikely that a pessimist would persevere in a tough business when things are going badly whereas optimists would. It is no coincidence that most CEO’s of large listed companies are optimistic by nature. Many of them are accused of being cheerleaders who always focus on the positive without much regard to the problems facing their companies. To some extent this is a valid criticism but one needs to understand that these CEO’s do not view the problems in the same light as the pessimists. There are very few of these problems that seem insurmountable to them.

In my experience, successful investors (that means people who have done well over decades) are almost universally optimists at heart. However, they are not unrealistic or irrational in their expectations. When I meet new people and we discuss investments, I try to get an understanding of the person’s outlook on life. Natural pessimists are often really calm in the midst of an economic meltdown - because they were expecting it! However when the market starts doing well, they are already worrying about the next crash. This might seem like a sensible attitude to money (it is) but pessimists usually have limited wealth in their later years. The cause is simple, because they have always been ‘sure’ that the markets will crash, they have tended to underinvest over their lifetimes. If you are structurally under-invested in growth assets like shares and property, you have limited ability to outpace inflation over the longer term. As with most things in life, one needs to be balanced in your outlook with investments, you need to maintain a belief that markets will grow over the long-term while ensuring that you don’t get caught up in the hype that comes with investing.

Warren Ingram is an award-winning financial planner and respected personal finance commentator in the media. He is the co-founder of Galileo Capital and has been a financial planner for nearly two decades. He was the South African Financial Planning Institute’s Financial Planner of the Year in 2011. Warren is a regular guest on 702 Radio and Cape Talk’s The Money Show with Bruce Whitfield. In addition, he writes a monthly article for the Sunday Times and Moneyweb, as well as periodical articles for a range of other publications.

Warren’s book, Become Your own Financial Advisor will be published by Zebra Press in July 2013 and will also be available in eBook format.

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