4 minute read
FINANCE
This phenomenon as it is known today follows the reasoning that if you’re incompetent you can’t know you’re incompetent. According to researchers Prof David Dunning & Justin Kruger many mistakes including investing are made because people overestimate their abilities, as they don’t know what they don’t know. A recent US President was diagnosed with the Dunning Kruger syndrome and the results of some of his disastrous decisions bear witness to this fact. His capacity to make the correct decision was often clouded with his inability to recognise that he wasn’t as bright as he thought he was and overestimated his capabilities. You’ve heard the phrase ‘a little knowledge is dangerous’ well in the investment world this couldn’t be further from the truth. According to study beginners approach an investment task with great respect because they know they lack the skill to make the correct decision. After gaining initial but modest experience they quickly fall victim to a ‘beginners bubble’ and lose their grip on reality with the initial beginner’s skill proving fatal. Take the bank robber McArthur Wheeler who greatly overestimated his skills when robbing an American bank in 1995. It didn’t take long to find him as he wasn’t wearing a mask and had been filmed by the surveillance cameras. He was totally astonished when caught as he had convinced himself that by rubbing lemon juice on his face that his image would be invisible to cameras. This failed robbery was used in a paper published by Prof Dunning, concluding that people with certain weaknesses tend to overestimate their own ability and underestimate that of others. Anyone who wants to be proficient in a specific area therefore faces a dilemma. On the one hand learning is necessary to acquire the skill. On the other hand it is that very learning that leads to overestimating your ability. Dunning and his colleagues recommend humility and quoted the British Philosopher R G Collingwood. He observed that people only become masters of what they specialise in when they learn that they will remain beginners all their lives. This nugget of wisdom is something investors can learn from.
PHILIP VAUGHAN Director at Abacus Assurance Financial Services Ltd Porthcawl 01656 772222
WHY IS MY CREDIT SCORE STOPPING A MORTGAGE APPLICATION?
At the time of writing, we’ve had a couple declined on a mortgage application despite good income and never having missed any payments on their mortgage or credit cards. This can occur but for particular reasons. The vast majority of us don’t realise is that, if we regularly go on-line to visit comparison websites, for example, you leave a trail of ‘footprints’ that suggest you are constantly looking for credit. If you pay by installments for car insurance, for example, then that is a credit agreement, where you probably pay interest for the facility of monthly payments. In the case mentioned, the couple had made several searches on-line each week for many weeks, each visit to the website recording a search, which badly affected their credit score and hence their mortgage application. Our underwriter Karen knows this issue inside out and we can guide you, as we’re linked directly to the four main credit reference agencies. So, if you are struggling to get sorted, give us a call – 01656 782545 / 07768 418308, even after hours and weekends. DON’T continue trying to do it yourself and recording more searches against you – we can assist. Even other advisers come to us with their more difficult cases – if we can’t place it, it can’t be placed. Give us a call to find out how we could help.
PAUL FIELDING Dragon Financial 01656 782545 / 07768 418308
Deadline date for the August issue is: Thursday 15th July
IT’S A TRUST THING
An important area of financial planning that is often overlooked is the use of a trust in connection with Life Insurance plans. A trust allows you to set aside the proceeds of the life cover for the benefit of a specified person or people. The asset is then managed by a Trustee who is also nominated by the policyholder. The Trustee accepts responsibility for ensuring that the benefits are paid to those who have been named as beneficiaries. The benefits of placing a plan into trust are many. Here are a few. 1. You name your beneficiaries and Trustees. This enables you to have control over who exactly will benefit from the proceeds, and in what proportion. You can have several beneficiaries and can split the benefits as you desire. Often, your beneficiaries will be under 18, so you need to consider who to nominate as Trustees. It may be wise to choose the same people who would act as potential guardians for them. 2. A life insurance plan normally forms part of your estate, so could be subject to inheritance tax, currently set at 40% on estates above £325,000. A trust puts the plan proceeds outside of the estate, thereby potentially saving thousands in inheritance tax. 3. A trust can pay the benefits very quickly, as there is no need for probate. Bills and mortgage payments do not stop for the family, so having a speedy payout can reduce some of the stress involved. If you are unsure if your current plans are set up with a trust, or are looking at taking out cover, please get in touch. I can review your existing plans, and provide independent, unbiased advice, based on your individual circumstances. Checking to see if your plans are set up in a trust can just take a few minutes and it could be invaluable in so many ways.
PHIL PROTHEROE Tavistock Partners [UK] Ltd 01656 771747/ 07859 129580
