Opinion
Why you don’t have to be smart to be wealthy
Paridhi Jain
Money contributorThere’s a big misconception about wealth, one that even I fell prey to.
It’s easy to see why, though. You take one look at how the finance industry is depicted, with men in fancy suits who use big words and point at complicated numbers and graphs … it’s enough for anyone to think that to be wealthy, you have to be smart.
When you let go of your egoistic attachment to feeling smart, you’ll see that you can halve your work and double your results.Credit: Simon Letch
Somehow, we’ve associated financial competence with intelligence. It must take intelligence to manage your money well and invest wisely. Right?
Some time ago, though, I started to realise there’s a big problem with this narrative.
I frequently had very intelligent and well-educated people with stellar careers coming my way to ask for help managing their finances.
Now, obviously competence in one area doesn’t magically bestow competence in another. You can be great at your job and terrible with your finances. They’re different skills. So that wasn’t surprising.
Trying so hard to be smart leads to not-so-smart choices.
What I did notice, though, was that even when presented with a clear action plan, these intelligent, academically oriented, educated people sometimes had a harder time acting.
In comparison, I often found that people who came in as a blank slate – complete beginners with no idea what they were doing – were more ready to learn by doing. This group of people often learned faster, executed faster and got results faster.
This is a bit of a generalisation of course, but after years of working with many people, I have noticed some patterns.
If you’re very intellectually or academically oriented, do you find yourself:
1. Over-analysing and over-researching everything? You have to do all the research, collect all the data, crunch all the numbers, survey all your options, know everything there is to know … before you act.
You tell yourself you need that information (but you don’t). In fact, most of that information has no bearing on the final decision, but it does make you feel smarter and safer.
2. Second-guessing and questioning everything? You don’t want to be a sheep. You don’t want to do what everyone else is doing because you think you’re better (i.e. smarter) than the average person.
So while others have already implemented what they’ve learned, you spend extra time digging for secrets others don’t know, so you can be in an elite class.
3. Overcomplicating things unnecessarily. Why use a budgeting app when you can custom-build an elaborate spreadsheet from scratch (that you’ll struggle to use consistently because it’s such a chore)?
Why invest in simple ETFs for market returns when you can spend every weekend for the next two years learning “how to invest like Warren Buffett”, hoping to outsmart the market (but instead you just lost two years of market gains by not investing)?
I found that smart people lost a lot of opportunity and time because they were essentially trying too hard to be clever, avoid mistakes, get an edge over others and do things differently.
They think these behaviours are smarter, but actually, they result in less optimal outcomes. In other words, trying so hard to be smart leads to not-so-smart choices.
What I’ve come to learn is that the key to wealth isn’t smartness, but simplicity.
This is supported by the research. In the realm of investing, for instance, consider Warren Buffett’s 10-year bet against the hedge fund industry, or the latest SPIVA Australia Scorecard report, which found actively managed funds frequently fail to outperform their benchmark over the long term.
In other words, for most people, holding onto a simple index fund over the long term will yield better results than actively trying to outperform the market by stock picking, timing the market and trading.
See, simplicity is sustainable (you can maintain it long-term), scalable (you can get more results without more work), and speedy (you aren’t weighed down by complexity).
This is a hard pill to swallow for those of us whose identities are linked to the complexity of the work we do. We don’t get the same bragging rights when things are simple.
But if your behaviours aren’t getting you better results than the simpler alternative, then what’s the actual benefit (or ROI)? Is the only real gain that you get to feel smarter?
If so, your need to feel smart isn’t helping you build wealth – it’s holding you back from it. It’s making the whole wealth-building process harder and slower than it needs to be.
When you let go of your egoistic attachment to feeling smart, you’ll see that you can literally halve your work and double your results.
And doesn’t that sound like the real smart way, anyway?
Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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