oVERCONFIDENCE
‘Tendency to overestimate one's ability to predict and control future outcomes.’
‘I can do that’ was the catchphrase of one of the characters in Catherine Tate’s TV show who would willingly claim to be able to drum, dance salsa and translate languages, but was incapable of doing any of these!
Overconfidence can be a useful asset in life, but in the world of investment it can do more harm than good.
action
When making recommendations, make sure that:
- There are adequate warnings of the risks in the suitability report.
- Provide examples of what could happen if markets crashed and there was a prolonged recovery.
- Explain unforeseen risks, such as sequencing and pound cost ravaging.
- Remind them of the risks inflation can pose and the difficulties of planning for their money to last for an indeterminate period.
Helping clients understand that, irrespective of their level of confidence, there are things that are simply beyond their ability to control, may help them appreciate the risks they face during retirement.