In 1995, two men robbed a bank in Pennsylvania.
Their cunning plan to avoid getting caught was to rub their faces with lemon juice. It’s a vital ingredient in invisible ink, so why wouldn’t it make them invisible to surveillance cameras too?
Of course, it didn’t work. Not only were they arrested, but their case is said to have inspired what is now known as the Dunning Kruger effect, the idea that people with limited knowledge or competence on a subject often vastly overestimate their abilities.
We’ve probably all been guilty of it this at one time or another. Maybe you’ve done some DIY that didn’t look quite right, or attempted a repair that invalidated your insurance.
It’s not hard to overvalue your own skill at something. Particularly if you’ve done a little (but not a lot) of background reading. A little learning is a dangerous thing.
Why ‘do-it-yourself’ can be a bad idea
It’s probably not surprising that we’re saying this, but one area where overconfidence can be really damaging is when it comes to planning your finances.
These days we’re flooded with information. Search the web, or the financial pages, and you’ll see plenty of stock tips, with experts recommending you BUY, SELL or HOLD.
Everything is accessible. With your pension, ISA, or entire investment portfolio available on a phone app, why not just do it all yourself?
As financial planners, we think it’s certainly to everyone’s benefit when they get more involved and want to educate themselves financially. But although it might sometimes seem easy – appearances can be deceptive.
Quite simply, you don’t know what you don’t know.
American psychologist Abraham Maslow coined the phrase ‘if all you have is a hammer, everything is a nail’, relying on what’s familiar means you aren’t seeking out alternatives or getting the full picture.
Planning for your financial future is more than just picking out a good performing fund or taking out life insurance. You need to know about risk – how much you’re willing or can afford to take and what impact that will have on your eventual financial reward. You also need to be fully abreast of what assets and financial instruments will provide you returns – and which ones you should avoid at all costs. This all takes time, space and experience to research and understand.
And then there’s the often-impossible task of taking the emotion out of financial decisions that can cloud our judgement. When you go it alone, it’s very easy to fall into a trap of picking favourites, chasing losses, or being overly optimistic or pessimistic about what lies ahead. Controlling your behaviour through all the market cycles – the good times and the bad times – means being aware of the blind spots and cognitive biases that all of us are prone to (according to Charles Munger of Berkshire Hathaway’s there are an incredible 25 cognitive biases to be on the lookout for).
Knowing when it’s time to trust the experts
So, what do you gain from using financial planner rather than trying to do it yourself?
1) Experience
To become a chartered financial planner means taking lots of exams – I’ve passed a total of 18 exams covering all of financial services and related subjects. It takes several years to achieve this.
In addition, with the requirement for continuing professional development (CPD), you can trust that your financial planner is well-versed in what’s out there and how to overcome the more complex hurdles.
What does this mean for you? We don’t expose you to undue risk, we make sure you’re not overpaying on tax, and we can learn from the lessons of the past.
2) Reassurance
Human nature will make you doubt yourself. None of us are immune – I’ve been looking at remortgaging and trying to choose between the two or five-year fixed rates. Even though I’m qualified to give advice, I’m still getting a second qualified opinion to help me think more clearly.
And that’s where we can help. With reassurance. How we help you achieve your goals and put your money to good use, goes well beyond the exams we’ve taken.
What can’t be underestimated is the role your financial planner plays as a guide, we’re there to coach you through your thought process – and come out with the best decision for you.
Please get in touch to find out more about how we can give you reassurance and help you with your financial goals.
This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances. Cover will cease on insurance products if premium payments are not maintained. The value of investments may go down as well as up and you may get back less than you invest. The Financial Conduct Authority does not regulate some aspects of Trust, Tax and Estate Planning. Not all mortgage contracts are regulated by the Financial Conduct Authority. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
