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.

    I use this as an example to show clients that a little knowledge can be a dangerous thing.  

    The explosion in DIY investing since the start of the pandemic can’t be ignored

    According to Boring Money, in 2020, DIY investment platforms had year-on-year assets under administration growth of more than £100bn. There is now a record £329bn held by DIY investors in the UK and customer numbers have increased by more than 20% year on year to surpass 7 million.

    Lockdown enabled people to save more – certainly initially. It also gave people more time to think about saving and increase their understanding of it. In addition, the 'meme stock' frenzy of companies such as Gamestop attracted new people to investing. And there's still a growth in demand from people to pick their own funds or wealth products.

    Whether this is first-time investors or not, the issue is that these days, everything is accessible. With pensions, ISAs, or an entire investment portfolio available on a phone app, why not just do it all yourself? It might be tempting for current clients to at least wonder.

    But as we know, 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 not seeking out alternatives or getting the full picture.

    What I tell clients is that planning for your financial future is more than just picking out a good performing fund or taking out life insurance. Their lives will ebb and flow resulting in different priorities and needs, and therefore planning strategies around taxation, cash flow and investment risk are incredibly important.

    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 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).  

    In short I talk about the three things clients gain from using financial planner rather than trying to do it themselves:

    1. Experience - To become a financial planner means taking exams, which takes years. In addition, there’s the requirement for continuing professional development. This means 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. Even as advisers we doubt ourselves and own point of view. 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 to take the emotion out of the decision for me.
    3. Diversification - People often want to know ‘What would you do?’ I mention that personally I prefer a passive investment strategy, with a ready-made diversified portfolio. Therefore, I don’t have to spend time researching individual companies. If one company in my allocation performs poorly, it’s unlikely to have an impact.

    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.  

    But a little learning is a dangerous thing.  

    What can’t be underestimated is the role we play as the guide, we’re there to coach clients through their thought processes – and help them make the best decisions now, and in the future.

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