Your Money
All good investing comes down to surviving an inevitable chain of short-term setbacks and disappointments to enjoy long-term progress and compounding. So how does Bill Gates manage this apparent contradiction?
Optimism and pessimism can coexist.
If you look hard enough, you’ll see optimism and pessimism next to each other in virtually any success scenario. They may seem like opposites, but they actually work together to keep everything in balance. Gates understands that you can only be an optimist in the long run if you’re pessimistic enough to survive the short run.
Save like a pessimist.
Saving like a pessimist means you acknowledge the cold statistics of how common bad news is. It’s common at a global, national, local, business, and personal level. So save money heavily, knowing with certainty that you’ll need a cushion to deal with the next banana peel. Be a little paranoid, knowing that the assumptions you hold today could break tomorrow, and you’ll need enough room for error to make it to the next round.
At PWM, we call this our Living Vault (0-3yrs)...come hell or high water, we know how to cover the next three years of cash flow.
Invest like an optimist
ore people and businesses try to solve problems than fudge success or get into trouble. But the odds tilt ever so slightly toward long-term progress amid frequent setbacks. As long as more people try to get better than screw up, the long-term odds are in an economy’s favor. And that’s almost always the case because the screw-ups — the declines, the recessions, the wars — fuel the problem-solving. Once the odds are in your favor, compounding takes hold. And then boom!
At PWM, this is our Living Vault (4yrs+)...knowing we have a 0-3 year strategy for short-term setbacks, this where the long-term growth happens.
A powerful money lesson from Bill Gates
by Morgan Housel
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