In a world full of get-rich-quick schemers, Tae Kim is a breath of fresh air. His “Financial Tortoise” videos preach patience over brash gambles and overcomplicated portfolios, and like many smart investors, Kim promotes wealth-building techniques that are safe, slow and steady.
Common sense dictates that people that earn more money have access to better knowledge, opportunities and resources, and as a result, have more success investing their money. However, Kim believes the opposite. In fact, he believes that “high earners suck at investing.”
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As he mentions in a recent YouTube post, while the S&P 500 has averaged a 10% return over the past 30 years, the average investor earned just 5.5%. Worse, higher earners underperformed by 6%, according to a DALBAR study.
In his post, Kim identified five reasons why high income earners get the worst results.
Complicated Portfolios
According to CNBC, “dead” investors — those that follow a strict “buy and hold” strategy — are more likely to get better results than active traders. One reason for this is the tendency for higher earners to complicate their investing.
Many successful people are used to dealing with complex problems and solutions, and that can influence their financial decisions. Kim notes that investors holding MBAs or PhDs stash a higher number of assets in their portfolio and trade more often. If this is you, try not to equate your expertise in one field to another.
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Relying on ‘Experts’
Trusting your tax return, your important documents, your car and even your lawn to skilled professionals is a perk of being successful. But relying on advisors can cost you plenty in fees, and more importantly, in performance.
According to a 2024 S&P study, about 90% of active public equity fund managers and 81% of active public fixed income managers underperform their index over a ten-year period, Apollo Academy reports. You’ll be better off saving your money by doing some research and investing yourself.
‘I Can Afford To Lose This’
A high salary gives one a significant financial buffer or safety net against losses that investors that earn less simply can’t afford. Making a lot of money, someone justifies making financial mistakes and being reckless.
“To me, this cushion can create a casino mentality,” said Kim. “You don’t take your losses as seriously because you know your next paycheck can erase them.”
Too Much Trading
Disciplined investors who manage their emotions and adhere to a long-term strategy are better positioned to outperform the market. That doesn’t sound outrageous, does it? Then why can’t high earners resist tinkering?
“High achievers equate activity with productivity,” said Kim.
What might get you ahead in the rat race might doom you to failure in the investment racket. To prove his point, Kim quotes Nobel laureate economist Paul Samuelson, who said, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take your money and go to Las Vegas.”
Financial FOMO
Allowing your emotions to guide your decisions on “hot” buys like crypto, SPACs and meme stocks can kill your investment potential and savings quickly. Kim tells viewers that many of these “opportunities” are based on a buyer’s fear of missing out (FOMO), rather than real knowledge or substance.
“Recognize that social comparison drives risk-taking behavior. And this can get especially dangerous when it comes to investments,” Kim said.
Acquiring a high salary is an important first step toward creating long-term, sustainable wealth. However, there is more to it than that, and it is critical to prevent frequent investing mistakes that might harm your financial future.
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This article originally appeared on GOBankingRates.com: This Is Why Many High Earners Are Bad at Investing, According to This Money Expert
