If you’re not familiar with the Dunning-Kruger effect, it’s a theory that says individuals with low knowledge on a topic often feel most confident about their skills on that topic. We see this all the time in things like medicine, politics, law, etc. In investing, it’s certainly on full display as well.

This chart is a summary of my experience, both lived and witnessed, in how many people fall along the curve. I’ll break down the journey:

• At the beginning, the simple thought of “investing” is so intimidating and overwhelming it seems like you couldn’t possibly compete in that world without a ton of dedication to learning and understanding. Unfortunately, vulnerable new investors are often ripe pickings for commissioned insurance and investment salespeople pushing high cost, underperforming investment products.
• At the peak of the curve, some feel like they’ve done their research and figured it out and are ready to trade their way to riches. This almost exclusively ends up in disaster. Think of all the wealthy people you know in your own personal life. Have any gotten there by trading? The stories you hear online are either unlikely outliers or lies.
• After getting beat up by the market, investors often run to the simple/easy thing. A basic index fund to guarantee their fair share of all market growth.
• Once some of the confidence returns, a Warren Buffet style call to picking individual stocks emerges. Why not invest long term in great companies as a way to beat the market?
• The most knowledgeable tend to always respect the mighty efficiency of the market. Rather than spend time and effort introducing complexity only to be unlikely to outperform, they accept the most optimal path to growing their wealth in the market, buying and holding an index fund.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy

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By: Gabriela Gonzalez
Title: The irony of investing: the less you know the more confident you feel
Sourced From: personalfinanceclub.com/the-irony-of-investing-the-less-you-know-the-more-confident-you-feel/
Published Date: Tue, 02 Sep 2025 22:02:31 +0000

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