In a complicated world, be a Rational Optimist

War in Ukraine. The fear of war in Taiwan. The effects of long Covid on the economy, on productivity, on our health. AI bots coming to steal our jobs or undermine our democracy. Climate change…

We’ve never had it so good.

I mean that. We’ve never had it so good.

But, if you flick through the papers, you could be forgiven for worrying that everything in the world is about to disappear into oblivion.

Yes, the world is a messy place and it’s very human to focus more on the bad than the good. But if you compare life in 2023 to life in 1973, 1923, or 1823, you’ll quickly reach a different conclusion.

In 1997, for example, 42% of the population of both India and China were living in extreme poverty. By 2017, this had reduced to 12% in India and a stunning 0.7% in China. That’s over 750 million people out of extreme poverty and on their way up the economic ladder in just 20 years.

The human race really has never had it so good. And despite what many might assume in the midst of a cost-of-living crisis, the overall trend of higher living standards around the world is set to continue.

Understanding long-term trends like these fills me with optimism. Not naïve happy-clappy optimism, but rational optimism.

Which is why I highly recommend that you read two books. Factfulness by Hans Rosling, and The Rational Optimist by Matt Ridley.

Factfulness lays out ten clear reasons why we’re wrong about the state of the world and why nearly everything is better than we fear. As a species, we’re healthier and happier than ever before, despite what we might be led to believe by the daily news-flow.

The Rational Optimist is a response to the doomsayers. It explains how we got where we are, and why we could – and should – expect things to get better over the next century.

Much of its focus is on the way market forces and capitalism (with all its faults) has driven cooperation, innovation and problem-solving – three things that apply to finance just as well as they do to the human condition.

But what’s all this got to do with financial planning?

Your pension, investment or ISA funds are in some way, shape or form invested in the shares of the world’s great companies.

For any company to remain competitive and to grow its profits and market value, it needs to be able to constantly innovate, overcome problems and find new solutions.

And many of these innovations, have been directly responsible for huge leaps in our living standards and will continue to do so in future.

When viewed this way, assets like company shares can be seen as a barometer of human ingenuity and adaptability. If you look at your investments like this, you’ll probably find you’re a pretty resilient investor, and it pays to be historically:

If you don’t share this long-term confidence, you may find your resilience to any level of market turbulence is low. This often results in high stress levels (emotional harm) and/or panic-selling (financial harm).

It’s ok. Investing in markets, no matter how well diversified, isn’t for everyone.

Core values

We know there are no certainties in the world, but thousands of years of progress is evidence enough to trust in the power of human ingenuity within the market framework.

And it’s precisely why being rationally optimistic about the world and the future is one of Arkenstone’s core values.

If that sounds like you, get in touch if you haven’t already. We’ll probably get on very well.

If you sit more naturally at the doom and gloom end of the spectrum, have a read of the recommended books anyway.

They probably won’t change your world view, but they might help you sleep just that little bit easier.

Simon Ben-Nathan

This content for general information only and shouldn’t be deemed to constitute personal advice. You should seek the counsel of a professional before taking any major decisions.

Investments carry risks. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.