The past decade offers a critical lesson on managing our money: Steer clear of the extremes of pessimism and optimism.

These days, the volatility in the stock market is unnerving, and investors are understandably fearful. That said, what you don't want to do is pull an Avery -- as in Sewell Avery. He went into a bunker.

The retailing giant Montgomery Ward was losing money during the Great Depression. Avery was brought in to turn around the retailer's fortunes. He transformed a $5.7 million loss in 1932 into a $20.4 million profit by 1943. Yet Avery was convinced another Great Depression would follow World War II.

So he got Ward ready for economic collapse. He hoarded cash, refused to spend on expansion and got rid of costly talent. The result was that Avery missed the biggest consumer spending boom in history. The company never really recovered and closed its stores in 2001.

But you also don't want to do a Durant -- as in William "Billy" Crapo Durant. The founder of General Motors was forced out in 1920 (for the second time) but found a far better playground for his optimism: Wall Street.

Durant bought equities in the belief they would go up and up. His optimism paid off fabulously during the Roaring '20s. He was wiped out in the Depression. Later, he ran a bowling alley in Flint, Mich. He died in New York in 1947, poor and largely forgotten.

What should you do? Heed he advice of my favorite financial planner: Aristotle. His most famous idea is the Golden Mean -- that desirable although elusive middle between two extremes. The mean "lies between excess and deficiency," says Aristotle -- or between Avery and Durant.

The practical application of the golden mean is better known as a "margin of safety," a perspective that helps understand the consequences of being wrong while being in position to take advantage of opportunities. It's the most valuable concept for individuals and families managing their money.

What is the margin of safety in practice? A classic example is to have an emergency savings fund that would cover household expenses for at least a year. That's a margin of safety against a layoff. When it comes to retirement, the question you should ask yourself is not "How much will I make on my investments?" The real question is "How much can I afford to lose?"

Of course, everyone's specifics will differ. But the basic perspective holds.

Chris Farrell is economics editor for "Marketplace Money." Send your questions to cfarrell@mpr.org.