A Confession – I’m Often a Money Contrarian
I often offer contrarian opinions and ideas, especially in personal finance.
This is because my personal experience proved to me that I got far more from following my own path for 11 years than from 18 prior years of following the herd (see more below).
I’ve even collected some of my most popular stories on Medium into a collection I call “Be a Money Contrarian.”
Here are some of the stories you’ll find there that offer an unconventional take:
- Why Buying a New Car Makes More Sense than Buying Used
- Why Prepaying Your Mortgage Is Almost Always a Terrible Idea
- Do You Really Need a Massive Emergency Fund After All?
So, what does it mean to be a contrarian anyway? According to the Oxfordify Dictionary:
noun: contrarian; plural noun: contrarians
a person who opposes or rejects popular opinion, especially in stock exchange dealing.
"it has become fashionable to be a stock-market contrarian"
opposing or rejecting popular opinion; going against current practice.
"the comment came more from a contrarian disposition than moral conviction"
The Pros and Cons of Being a Contrarian
If you do things differently than most people, you will likely get different results.
This can be good or bad.
An example of the former is that most people never start their own business. If you go counter to the conventional choice of remaining an employee your whole life, you dramatically increase your chances of building real wealth. Your business could of course go bust, but if you educate yourself on how to do it and/or find a good mentor or coach, the risk isn’t as high as the reward.
Personally, I worked as an employee for 18 years after graduating with my PhD. Then, I started my own small consulting practice. Neglecting the effect of an unpredictable doubling of the value of my first home during the 5 years I owned it, my net worth would have stayed close to $0 for my 18 years working as an employee (including a couple of years with a 6-figure salary). By contrast, working for myself increased our net worth more than 15-fold in 11 years.
On the other hand, most people don’t spend all their money on lottery tickets. Go contrary to this conventional choice and you’ll most likely stay broke forever.
So how do you know if a piece of contrarian advice is good for your financial health or not?
3 Reasons Specific Contrarian Advice May Be Toxic for Your Financial Health
Personal finance is just that, personal, so what may be great advice for one person could be the worst possible advice for another. Most people offer advice based on their personal experience. This experience may be vastly different than your situation. If someone offers you advice that seems completely detached from your situation, it’s probably wisest to ignore it and move on. That’s why I caveat my own contrarian advice, pointing out situations where I don’t expect it to apply. For example, if you can fix your own car, my advice to buy new doesn’t apply to you.
There is a reason why conventional wisdom is followed by so many. It may not give you outsized outcomes, but it’s also unlikely to get you in major trouble. In many cases, contrarian advice is simply not well thought out. For example, Dave Ramsey pushes his disciples to pay off their mortgages as fast as possible. In almost all cases, that’s poorly thought-out advice that will increase their risk of losing their homes, and cheat them of an opportunity to come out further ahead financially.
The final and most important reason you may want to avoid touching specific contrarian advice with the proverbial 10-foot pole is if the person offering it stands to gain from your following their advice, whether or not your outcome is better for having followed it. That’s why the best financial advisors are likely to align their compensation with your results. It’s also why the worst are out-and-out scammers (think the late, unlamented Bernie Madoff).
The Bottom Line
When you read something that offers a contrarian point of view, understand that being contrarian just means it’s different. This could be good different or bad different.
You need to be a critical reader, consider if the advice is well-thought-out and supported by logic and/or data. See if it’s relevant to your situation. See if the person presenting it has a vested interest in your following their advice, even or especially if it’s bad for your financial wellbeing.
Just as you’d do with unfamiliar food, you need to see if it passes the sniff test first, then the taste test, and even then, try it out for a bit to see if it agrees with you and is a good fit before going all in.
This article is intended for informational purposes only, and should not be considered financial or legal advice. You should consult a relevant professional before making any major decisions.