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High I.Q. Scores Correlate to Better Investments

This article was written by in Investing. 16 comments.


In Finland, all young men are required to spend some time in the military. Finland also has a wealth tax, requiring citizens to report their investments to the government. As a result, researchers from the University of California, Los Angeles, Aalto University, and the University of Chicago have discovered data worth studying. Because all military personal are required to submit to intelligence evaluations, researchers looked at I.Q. scores to determine whether there was any correlation between these numbers and investing success.

The study uncovered interesting investment patterns.

  • People with a higher I.Q. were more likely to diversify their investments more.
  • With a higher I.Q., investors were more likely to invest in small-cap stocks.
  • Higher I.Q. correlates with heavier involvement in the stock market.

From the New York Times article discussing the study:

The authors didn’t claim that people with high scores had some kind of monopoly on stock-picking genius. What they did contend was that these people tended to follow basic rules of successful investing.

In some ways, it’s a puzzle why I.Q. scores would matter in this regard. After all, the view that people should diversify their investments, to avoid putting all their eggs in one basket, is widely accepted. It’s not hard to diversify a portfolio or to have someone do it for you.

BrainAccording to the paper, the study was controlled for external factors like wealth, income, age, and occupation. This is an important distinction to note because there is some controversy surrounding I.Q. tests. The typical I.Q. test may be biased in favor of people from families with a higher income or from a higher socio-economic status background.

I don’t know my I.Q. score, and I expect most readers don’t know theirs, either. It would be difficult to have an opinion on the results of this study without I.Q. tests being widespread. Sometimes, though, success in the stock market seems to rely on other factors: good research, good timing, and good planning.

While the habits above may be correlated to high I.Q. scores, what this study didn’t seem to measure is outright financial success in the stock market. We can assume that diversified investments, a focus on small-cap stocks, and more money invested lead to better results. That’s likely true over the long-term, but short-term success might depend on other factors. Those other factors might not be correlated to I.Q., or if they are, were not considered in this research.

Do you believe there is a link between intelligence (whether measured by I.Q. score or not) and stock market success?

Photo: dierk schaefer
The Journal of Finance, New York Times

Updated June 20, 2014 and originally published February 29, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar Well Heeled Blog

That’s a really interesting study. I also think most people are clustered in the 90-110 IQ range, so would someone with 102 IQ be a more intelligent investor than someone with 96 IQ?

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avatar SteveDH

It seems to me that comprehension would certainly aid someone in investing. But an IQ test score doesn’t seem to be the right gauge. Many younger people who may score lower on a IQ test given in their teens or twenties can still, through education and life experiences, build the necessary understanding of economics and stock/bond market behaviors in order to become a successful saver/investor. It would appear that those with a higher IQ test result might have an easier go at that comprehension but they weren’t born with it.

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avatar someguy

Research in general supports that g is an excellent predictor of performance in virtually everything that requires cognitive ability. When hiring for most white collar/office type jobs, if there is only one thing you can have about candidates it should be their I.Q.. Traditional interviews are horrible at predicting later job performance of candidates.

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avatar tbork84 ♦1,867 (Half-Dollar)

That is a very interesting result, but I imagine that basic education about investments would serve everyone well. Intelligence can predict ability, but more often then not its really hard work and effort that yield success in any pursuit. If there was a stronger drive to educate all individuals about money and investing, then I would bet that an I.Q. score would not lead to better results from investments.

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avatar Ceecee ♦53 (Newbie)

Have you ever watched “Options Action” on CNBC? It takes a higher I.Q. than mine to understand all the hoops that these traders jump through. And there are times today when I think that options traders are the only ones really doing well in this market.

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avatar Steve Mertz

I’ve seen incredibly intelligent people make horrible investments! For my money I would love to see financial education mandatory in our education system.

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avatar krantcents

I don’t know if you can draw that conclusion. Are all intelligent people more successful than others in life? I think some are and others are not. Higher education generally means a lower probability of unemployment, but not success.

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avatar Luke Landes ♦127,435 (Platinum)

The first problem is defining success. This chart shows the correlation between IQ and net worth. http://www.flickr.com/photos/pkedrosky/472069325/

As you can see from the plotted data, there is no correlation.

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avatar DonnaFreedman ♦45 (Newbie)

Some people with high IQs are a little too aware of how smart they’re supposed to be. That might cause them to hesitate to change a bad decision (“I’m too smart to fail”).
But plenty of people with high IQs are just regular folks. I’m a member of American Mensa, and the Alaska chapter had a mixed bag of members: carpenter, lawyers, career military, teachers, a bookkeeper…even a couple of newspaper journalists. “Mensa” doesn’t automatically indicate “rocket scientist.”
Were any of them rich, or even fairly well-to-do? Beats me. We never talked about money.

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avatar Harm

Options traders don’t have to be all that smart….and they don’t ALL necessarily
make all that much money. (sure some do, some of the time….)

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avatar Earn Save Live

Intelligence is a tricky thing to measure. IQ tests invariably have a cultural bias, for instance. Earlier in the week, I posted about distributed cognition and personal finance. (If you’re interested, read Cognition in the Wild to get a sense of how complex our intelligence is!) But to answer your question, I think that IQ (however we measure it) is only one factor in how we approach finances – our environment, our culture, and our belief system play profound roles too.

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avatar Money Infant

I would guess that a higher IQ correlates with a better ability to think logically and to analyze data (can’t be sure and I don’t have any research to back up my assumption). Anyway, if that is true then yes I believe those with higher IQ’s would make better investors.

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avatar aa

People with higher IQ bother to spend time on learning how to invest and do research by logically picking stocks. People with lower IQ don’t understand the concepts and are lazy to do anything.

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avatar Rob Bennett

I don’t entirely grasp why this is being interpreted as being such a surprise. Shouldn’t we expect people with higher I.Q.s to be better investors? I am wondering if the correlation is not as strong as we would intuitively expect.

The article notes that the basics of investing are simple. The idea suggested here is that it shouldn’t take a high I.Q. to be a good investor. I agree. And I bet there are some good investors with low I.Q.s. But I still would expect to see some correlation between intelligence and investing ability.

Rob

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avatar Thuy

“According to the paper, the study was controlled for external factors like wealth, income, age, and occupation.”

And what of education level? I’d suspect education to be a better indicator of someone who made better investments, rather than someone with a high IQ.

I’m an International High IQ Society member, and utterly lazy. I just pick the best of the packaged options that my employer offers, rather than doing to legwork myself. A person with the same education and a lower IQ who took the time to apply their knowledge could out perform me easily.

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avatar Kody @FMT

In my opinion, having a higher IQ can aid for people to be better investors, however I think that a successful investor will have more common sense and “street smarts” rather than a comprehension of a collection of intelligence.

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