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Dentists Who Invest

Episode 248

Creating A Financial Masterplan

Hosted By: Dr. James Martin

James: 

Fans of the Dentist who Invests podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentist who Invests podcast episodes that really, really, really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me. What that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome. Welcome to the Dentists who Invest podcast Record. What’s good everyone.

James: 

Welcome back to another episode of the Dentists who Invest podcast. We are super privileged today to be joined by Shabbar Kassam, who is here to talk about something a little bit more ethereal than we normally talk about. We’re usually very matter of fact nuts and bolts the mechanics of investing, but today we want to talk about the philosophy of investing and the mindset one. We want to talk about the philosophy of investing and the mindset one must have to be a successful investor in the long run. Shabbar, how are you?

Shabbar: 

I’m very good, james. Thank you very much for having me on and, as it’s a kind of a co-episode, I’m also going to be sharing this with my audience on the Understanding Financial Freedom podcast. So welcome to the listeners there. But, yeah, super excited to be on. I’ve been checking out the Facebook group and all of the good stuff that you’re doing and there’s a real buzz around dentists that want to know more about investing and all of that jazz. So, yeah, so this should be quite fun.

James: 

Thanks, man. No, definitely, I can see this being a value-packed episode and, like I say, I’m really interested to hear this slant on investing, because it is something that, as yet, we have not discussed. So, and yes, also shout out to your listeners as well, shabbar. Shout out to me, james, the host of Dentistry Invest podcast, and, yeah, this will be a good one. This will be one I’ve been looking forward to for a while. So, shabbar, would it be okay with you if you did a little bit of an introduction for my listeners in the Dentsu Invest podcast, so they can get to know you?

Shabbar: 

Yeah, absolutely so. As you said, I’m a financial advisor set up Lumos Financial Towards the end of 2020, just decided that, after being in financial services for sort of 15 years an independent financial advisor since 2012, but always under someone else’s brand it was time to take the plunge and have my own name above the door. So, yeah, I’ve had enough of doing it someone else’s way and it was like right now it’s time to do it my way and bring my values and my philosophy to the world of financial planning and investing and helping clients. So, yes, so that’s. You know, that’s what I did, and we focus primarily on helping sort of business owners and individuals approaching retirement generally have more peace of mind and clarity over their financial future, which, in retirement, generally have more peace of mind and clarity over their financial future. So I guess that encapsulates, you know, finding out what they want, the lifestyle that they desire, and then helping them get it, and you know we’ve been pretty good and successful with helping those types of people along the way.

James: 

This is it, and this is why I was looking forward to having you on the podcast, shabar, because, like I say, what is often overlooked in the mindset of an investor is just how important it is to have the right psychological stance and viewpoint and how that is actually fundamentally and inextricably linked to becoming financially free, financially independent in the long run. And I’ll just share a little analogy on that one to illustrate its power. We were talking about this just before we jumped on the air, just off camera. For anybody who hasn’t heard this, this is an interesting way of looking at money and this is why mindset is so important, and Shabbar is going to flesh this out in more detail in just a moment.

James: 

My analogy would be there’s always the Joneses to keep up with and no matter how wealthy you are, you can always find somebody to be competitive with and spend your money on. So therefore, you must, you must, must, must, must, must, you must be restraint. You must illustrate yourself to be someone who has restraint, because you can only keep up with people. There’s always going to be the next successive person to keep up with in terms of spending your wealth. So let me just flesh that out. So let’s say you live next door to the Joneses and let’s say the Joneses get a cool car and you want to get a cool car as well. So you’re going to spend a little bit more money to get that cool car.

James: 

Okay, but what happens when you transcend the financial means of your next door neighbors? There’s always going to be the even wealthier neighbors down the street and they’re going to have a Lambo. Okay, so by the time you get a Lambo, you’re going to be keeping up with them. You’re going to be wanting to do that to keep up with them. But let’s say you’re very fortunate in life and you become very wealthy.

James: 

Then, if you can afford a better car than the Lambo you’re, always you’re going to be trying to keep up with someone like Jeff Bezos and he’ll have a super yacht, and then, therefore, you’re continually playing that game as soon as you enter into the world of being somebody who wants to keep up with the Joneses keep up with the next door neighbor you can never, ever win, because there’s always a black hole.

James: 

There’s always something else that you can spend your money on, and this is why showing restraint and this is why educating yourself on these psychological phenomenons are so important for your long-term financial success. And, on that note, I wanted to ask Shabbar how much money is enough money and at what point do we begin to save so that we don’t fall into the hedonic treadmill as you put it off camera, which is the term for what I’ve just described, so that we don’t fall into that psychological pitfall and then, therefore, can begin to save prudently for our long term financial goals? How much money is enough money? How is your perspective on that matter? How does that color your investments?

Shabbar: 

perspective on that matter. How does that color your investments? Yeah, I mean, look, this is where it all starts, right, this is just, you know, uh, base camp. You know we you can’t. You know we speak to a lot of people in the line of work that we do, um, where it’s.

Shabbar: 

You know you need to need to make more money. You know, need to get a return, need to invest what’s the quickest way, what’s the best way, what’s the most foolproof way? You know what’s the new way, and there’s always quite a burning desire to get more right and, like you know, like you said, is to get more. That’s not a goal, okay, um, and so the the idea of what what I try and do with clients is to find out, well, how much is enough. Now, enough is different to different people, okay, and there’s no judgment, because only an individual can really say how much is enough, but I feel that it’s very, very linked to the values that an individual holds. And the reason why I say that is because, when we look at money, what is money? Ok, money is just a tool. People confuse money with a lot of things that it actually isn’t. You know. You know back in the. You know back in.

Shabbar: 

You know, centuries ago, when there wasn’t money, me and you would have traded our respective goods and services that we provide in order to, you know, have a living. So you know, if you know you fix teeth and I provided sort of advice around, around finances or whatever it would be, well, there wasn’t even any money. So so let’s say I was a shoemaker, you know we would exchange, you know you check my teeth and I would provide you with a pair of shoes, right? So there was never this real, you know, there was never this real thing of like more and more money, right? So it comes down to the consumption levels that we want, the lifestyle that we want, and that could be a bottomless pit, as you say. So it’s only when we really explore who we are, what’s important to us and what values we hold can we even start to answer the question of how much is enough. Because if I want to be in a situation where I can help not only my family have a good lifestyle and I’ve got to define good, you know so good for different people will mean different things, but it could be that actually, what’s really at my core is helping people that are less fortunate and that’s going to require a certain amount of money. So, actually, you know, enough starts to move, depending on what I want to do with with my life.

Shabbar: 

But acquiring money just for the sake of acquiring money, because you want greater consumption, because you’re chasing some sort of happiness, that’s where you’re going onto the hedonic treadmill, because you believe that your happiness, your validation, lies in the consumption of more. And, as we know, human beings, we’re incredibly greedy creatures and that goes back down, you know, to to our sort of primal instincts, which has always been that you know you’ve got to hunt and gather and stock up because you don’t know when your next meal’s going to come. And we’re still kind of in that mentality at the moment because our brains haven’t evolved, because we’ve got an abundance around us, so we actually don’t need to hoard um. So there’s that one aspect of the fact that the human being is kind of programmed to be greedy, um, because otherwise you’d starve and die and that wouldn’t be good for the you know progression of the of the race. But also another thing that you mentioned, which was, you know, which was this keeping up with the Joneses? That also has its sort of history in man’s sort of like tribal days, because if you didn’t keep up with the tribe, if you weren’t accepted by the tribe and you became an outcast, you would again then be in very serious danger of potentially dying because you wouldn’t get.

Shabbar: 

You know, if you weren’t of a certain social status within that tribe, you could be left out. You know, the opportunities to progress and provide for you and your family would be diminished because you didn’t have that social status. And we kind of suffer from that as well, which is what you were referring to with the car and keeping up with the Joneses, because if we don’t, maybe we’re less than maybe we get excluded, and if we get excluded that’s detrimental to the progression for us within society. And so it all comes down to these core needs which we haven’t just quite figured out. That you know actually, there haven’t just quite figured out that.

Shabbar: 

You know actually there isn’t a lot of happiness in just going after the next shiny thing, because it’s actually really damaging, both from a psychological perspective of always wanting more, but financially we’re never going to reach a point where we’ve got financial freedom or financial independence. Because you know we’re splashing out and continuously spending money and there’s a very, you know there’s a very good saying is you know, you know what’s the difference between being rich and wealthy, right, so you know you could earn 250 grand a year and you think that you’re wealthy, but actually you’re rich if you spend all of that money, because all it is is, you know, money coming in, money going out, you’re not building wealth, um. But you know, true wealth is the ability to have time to do what you want when you want, because you’ve got income. That’s passive, right, that’s true wealth. So, yeah, that’s you know. That’s a long answer to a very deep and important question.

James: 

It’s great, though, because now you’ve pointed out that that’s actually a manifestation of our deep set reptilian part of our brain. Okay, but now we’re so much better. We’re homo sapiens, we’ve got a prefrontal cortex. Now we can rationalize these thoughts, and when we can see it in ourselves, that is so powerful. The values that you spoke about as part of your journey with the client is that something that you go into, that you ascertain what are those values?

Shabbar: 

Yeah. So again, you know, an initial sort of meeting or chat with a client is very much around. You know what’s important to them. Because until you know what’s important to them, you know a client may come with an investment problem. You know, I don’t understand a pension, or I don’t know what ISA to you know fund to invest in, or it could be about crypto, or you know all of the new stuff that’s around and people are sort of, yeah, you know, am I, you know, missing out on something, et cetera.

Shabbar: 

Whatever, the question is that’s not what they’re really after. You know, underneath is a question of am I going to be okay, you know, because that’s what’s really bothering someone. Am I going to have enough? That’s why the pension problem is a problem. It’s because people don’t know if they’ve got enough, what does this pot represent? Can I get better returns? Because obviously people are concerned about whether they’re going to be able to afford stuff in the future. So if you just dive in and solve that problem, you’re not addressing the deeper problem, which is the insecurity or the fear or the worry, and that’s linked quite often to their value. So you’ve got to uncover them, and the way we do that is just, you know, by asking sort of really important questions, um, that will help someone to to basically engage their heart more and sort of disengage maybe their you know that reptilian brain.

James: 

Um so yeah, it’s uh, it’s all about questioning and having a deeper understanding of the individual, and we’ve got sort of certain questions that we can ask to help that, like a coach would and what you’re also saying is, when you don’t have objectives, it can be self-sabotaging and, by the pure, unadulterated obsession of chasing money in itself, if we even know that that might have the pseudo appearance of somebody who is driven and will therefore be financially successful, that actually may not be the case until you have some cold, hard, cemented objectives and points that you can reach, so that, therefore, you can know that you’re on track, and also so you don’t get carried away with your spending. That’s also your point as well, which is great, which is great to hear and that will no doubt resonate with lots of people, and I can see that in myself at lots of points during my life. Why else is it important to have direction? Real quick, guys.

James: 

I’ve put together a special report for dentists entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. Whenever it comes to their finances, most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdentistuninvestcom. Forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them. I’m really looking forward to hearing your thoughts yeah it.

Shabbar: 

It’s so important because, just like on any journey, right, if you don’t, if you don’t know where you’re headed, you’re often going to get lost and sidetracked and that and that’s in sort of many, many areas, um, and it’s really important to have that sort of sense of it’s not going to be perfect, right, because the landscape changes and things change, but especially when you investing, you’ve got to have a goal that you want to achieve, because how are you going to assess that you’re getting nearer that goal? Or, if you’re further away, are you on track or you’re off track? So it’s really important once, for example, values are defined, what’s the lifestyle that you want? Ultimately, that’s a lot of it coming down to the lifestyle that an individual wants for them or their family, and that could be, you know, different things to different people. But once you’ve got that and that could be a numerical that I need to spend, you know, 50 grand a year in. You know, passively, or it could be that I need to put the kids through university and then I need to take care of my parents and then I need to give so much to charity, because that’s going to be aligned to my values Once you’ve got all of that there.

Shabbar: 

You can then know that you’re on that path to hitting those goals and you’re able to assess how far or how near to them you are. And it’s nice to have a finish line, because generally we’re in a rat race, aren’t we? And I don’t know about you, but I’m trying to exit the rat race as fast as possible, you know that’s, and then that will allow me the opportunity to do the things that I truly love doing. Work is one of them, but obviously my time of focus is more on my work, like the majority of us you know at the moment, and it would be nice to then have you know that future goal you know in sight and working towards it.

James: 

I love it, I absolutely love it, and you know what that actually tied in with the next thing I wanted to bring up, because you give us some tangible examples of what a plan might look like. So, donating X amount to charity, having X amount of money within X amount of time, are those two common ones? Are those the most common ones? What does a plan look like in more detail?

Shabbar: 

Okay, so, yeah, financial planning is a sort of it can mean different things to different people, but essentially, like the example that I give usually I draw this out but obviously, being a podcast, it’s not going to but if you imagine, we’ve all got a bucket, ok, so, james, you’ve got a bucket, I’ve got a bucket. But if we talk about your bucket, inside your bucket at the moment, you’re going to have assets that if I asked you listen, get your hands on some money you could turn to your bucket because it’s pretty liquid. So you might have some cash, you might have some stocks and shares in ISAs, you may have some crypto, for example, and you would be able to cash that in within a short period of time. So you’ve got assets inside your bucket. But then you might also have assets that are outside of your bucket, for example, property. Now, property is outside of your bucket because you suddenly can’t sell a couple of bricks to go on holiday to the Bahamas. So you’ve got an asset and you’ve got a buy-to-let property, maybe again outside of your bucket because you can’t access it. You’ll then have, potentially, pension pots which are outside of your bucket. Again, you can’t get hold of that money at the moment, until a later point in time, and then you’ve got your business. Now that could be your biggest asset, but again, until you sell it in the future, it’s an asset that’s kind of outside your bucket.

Shabbar: 

Now what financial planning does, is it then looks at what you’ve got assets, what you’ve got inside your bucket, outside your bucket, and then you’ve got inflows so you might be earning income, so you might be taking salary and dividends, you may receive child benefit, you might be receiving rental income, so your bucket’s filling up all the time, which is fantastic. But then at the bottom we’ve all got these taps okay, which is leaking money out of our bucket. So you know, the biggest tap at the moment is your current lifestyle. So you know, for me it’s taking care of my family, paying the mortgage, going on the odd holiday. You know food, water, electricity, charitable donations, playing football, going to support Crystal Palace, and you know, watching the odd game going to support Crystal Palace, and you know watching the odd game, and that’s my lifestyle. And then at some point in the future, that tap’s going to turn off and when the kids have buggered off and it’s just me and my wife, we might want to do some more extravagant things, you know, with the time that we’ve got, and so we’ll have a sort of a retirement tap, which will then be more money that we want to spend, more holidays, more charity, more things for our legacies, you know, whatever it is that we want to do. But then that will turn off and then it will be our later life tap that turns on and we’re not going to be doing a lot later on in life because we’re probably going to be too old to travel and it will be sort of, you know, fairly soon before we kick the bucket.

Shabbar: 

Kick the bucket Financial planning is helping a client look at their bucket and be able to answer the really important questions around well, what’s happening with this bucket year on year, and making sure that your bucket doesn’t run out, because if it runs out, that means you’ve got to turn off the taps completely and there’s no lifestyle.

Shabbar: 

But also you don’t want to die with too much in your bucket because if you do, after all the years of paying all the taxes that we do in this country, the biggest tax of them all, which is inheritance tax, might be there to sting your loved ones at 40%.

Shabbar: 

So dying with too much is an issue dying with too much is an issue.

Shabbar: 

So managing all of your assets how to live a lifestyle that is in line with your values and that’s going to make you the happiest person, but also doing it tax efficiently in a way that’s going to provide you with the money that you need later on in life, and also making sure that, if God forbid, anything happened, anything happened to you and you died or you’re sick or you can’t work that’s what financial planning is.

Shabbar: 

So having a financial plan is actually aligning your bucket to what you want to achieve, and that’s an ongoing process, because all of those little parts that I’ve just explained are moving all the time. The inflows are changing, the asset values are changing, the legislation around the tax efficiency of all of the bits within your bucket are changing. What you spend is changing as well. So this is like a moving jigsaw piece, and that’s why people do need advice at some point in their life, because it’s just like well, what the hell is going on with my bucket and hopefully you’re doing the right and sensible things to make sure that you know you can live the lifestyle that you want and you don’t run out of money I love the bucket analogy.

James: 

I love the bucket analogy because it makes it super tangible and understandable, and I love the taps at the bottom as well, because it’s really easy to visualize the water going in and the water coming out. And also key thing to understand is that there is such a thing as having too much water in your bucket as well, because then, so to speak, it overflows and you get stung by tax inheritance tax.

Shabbar: 

There we go and I should have just mentioned. But worse than that, james, is that you know, if you die with too much money in your bucket, you’ve got to look back and think what the hell did I miss out on? What did I not do? Who did I not help? You’re just unfulfilled. You were put on this earth and you could have done something grand because you were one of the blessed ones with a bucket that was like overfilling and you’ve gone to your grave and you’ve left it for people, which is which is fine, but you know what?

Shabbar: 

And you know poverty and had real hard graft because they haven’t grown up in the sort of the tech boom that we have, where we’ve had kind of everything you know, and they’ve had to really, you know graft for stuff and it’s really hard for them to to now spend the money because they were so used to not spending and just being savers. Whereas you know, our generation are a bit the opposite. Or you know the millennial, you know Gen X and what have you coming up? I think I’m a millennial, but yeah, you know, and it’s almost like slightly different with them, and I see clients now with so much money that are fearful to spend, because and I’m like, do like, do you know what? Look, we’re doing your planning. I’m looking at your bucket.

Shabbar: 

You know, even if you turn these taps way up and you spent a hell of a lot of money, you’re still not running out. Yeah, because you know we can do all the maths and the modeling and and all of that analysis. But again, you know it’s how you’re brought up. You know money is just an emotional thing, so it, you know, and and the interesting, because you know people make some really rash decisions when it comes to their money. You know, and um, yeah, and that’s why you know sometimes, you know good financial advice and financial planning is is worth its weight in gold, because it sometimes gets you to where you wouldn’t be able to get to on your own and you know what that ties in, really interestingly shabar with a book that I read not terribly long ago called the psychology of money, and it highlighted the fact that have you?

James: 

have you read it?

James: 

I see a smile, oh mate, it’s, it’s a, it’s a classic, it’s an absolute gem loved it and, by the way, they must have updated it recently because it talked about coronavirus in it. So they must. It must be a like a new edition or something that I read anyway. So in that book you’ve actually somewhat touched upon this already it points out that each one of us will never be able to fully empathize with someone else’s vision on money, someone else’s perspective on money, and that’s because we haven’t lived their life.

James: 

So you might know someone, you might have a close friend, and you might say, god, aren’t they tight-fisted, they wouldn’t spend it Christmas, but in reality you can never compare your life to theirs, because they might’ve grown up in abject poverty and they might look at you and they might say, how frivolous is that person with their money, but they’ll not be able to truly see things from your perspective, because money for you as a young person, as a younger person or when you were growing up, may have been something that was more transient or may have been something that you came across easily. It’s a mindset thing, and that is something that we don’t attribute necessarily to money, because we tend to think of it as a cold, hard statistic. But this is something worth talking about and pointing it out, and perhaps you mightn’t recognize it until you speak to someone else. I love the philosophy of the money. I think it’s absolutely fascinating. Anything you’d like to chuck on top of that.

Shabbar: 

No, mate, we all have our own money story. Know, I’ve got mine, you know I went. You know years of thinking, especially with religion as well. So you chuck in sort of your money story from your cultural background, then your religious beliefs and money just becomes this whole toxic little ball of mess that you just have to spend a lot of time unpackaging, because otherwise you do jump on on one of the two extremes, which is either that constant search for something new and shiny, potentially to almost, you know, fill a void, or something like that, or you know, you, you don’t spend.

Shabbar: 

The money doesn’t bring you any happiness. When you know, when you look at it, money is love and energy. Because you know, when you look at it, money is love and energy. Because you know when you spend money generally, you know if I’m spending on my family, I’m kind of displaying love, I’m providing for them, I’m doing good. You know, if it’s for charity as well, if it’s for myself as well, it’s self-love, it’s self-care. You know, if I treat myself to something, you know there’s nothing wrong with that. You know, treat myself to something, you know there’s nothing wrong with that. And and again, you know money is kind of energy because we go to work and all that money represents is that you know the energy that we’ve expended in our work. We get rewarded for that energy, you know, in the form of a currency. So it’s kind of like stored energy that we then in the form of a currency. So it’s kind of like stored energy that we then, you know, transfer to each other.

James: 

So that’s Capital is stored labor Capital is stored labor is another way of putting that.

Shabbar: 

Yeah, so again, so you know we’re looking at it’s just how you look at it and everyone’s got their own different story. Yeah, and you know my story was one where I witnessed, you know my parents were well off and they were doing really well and then, you know, made financial mistakes and caused, you know, a lot of financial ruin and heartache. And you know, I saw that and you know, caused, you know, a real issue. We lost our family home as a result of that real issue. We lost our family home as a result of that, and so that played a really big part in my own sort of view of money and kind of made me just shun it away.

Shabbar: 

And you know, no, I don’t want to, don’t want to deal with money, I don’t really want to look at it. I think it’s evil, I think it’s rotten it. Look what happened we. You know all of this bad stuff and and that. And that was just my own story because obviously, in an experience that I’d had, and now it’s sort of like the flip, because now what I do dealing with money on a daily basis in people’s financial futures is that actually now my sort of mission and aim is to stop people from following in the same mistake. You know that. You know that happened to my, to my parents as well. So now I’m like I’ve used that story now to help me, help other people not make sort of similar mistakes. Um, so it’s just weird the way it works right, um, and and it’s often our own work that we need to do with that story oftentimes it’s key, seminal moments like that, like that was one event that colored your perception of money for the rest of your life.

James: 

And there’ll be others in the audience listening who think to themselves actually, maybe I have this misconception of what money is because of one seminal moment that was perhaps very fortuitous or perhaps completely misfortune. And it’s an interesting way because if you can extract your perspective from that, then at that point, if you can truly emancipate yourself from that one feeling or that one event in your life that made you feel that way, would you necessarily view money the same way? So, are you using that one event, are you coloring your whole perception through this one event? Now, I’m not saying that’s right, I’m not saying that’s wrong. All I’m saying is it’s an interesting perspective, right.

Shabbar: 

Yeah, absolutely, and that’s the thing. There can’t be any judgment in this at all because, like you said, it’s people’s own story. But the story needs to be unpacked because sometimes it can be a damaging belief.

James: 

There you go, absolutely, absolutely. That’s so interesting. 110%, that’s going to hit home with somebody listening.

James: 

Tonight we are going to change gears slightly and talk about something else also related to money, but I want to ask your perspective on it, shabbar, risk versus reward that’s the unending seesaw or balance that we must understand to grow our money but also not over-leverage ourselves. Where do you see risk fitting in in somebody’s long-term financial planning? Do you think that it’s reasonable to say for most people that they should be as risk averse as possible and invest in stocks, invest in their ISA, invest in bonds, have that steady Eddie, high single digits, low double digits return every year? Or do you think it’s worthwhile that everybody should allocate maybe 10, 20% of their capital to something more speculative in the hope but not the guarantee that it may allow them to achieve financial freedom when they’re a lot younger? So say, let’s put in the speculative bracket, let’s put something in there like starting a business, or let’s put something in there like invention, inventing in a venture capital trust or something like that. Where does that fit in?

Shabbar: 

Okay. So I think, firstly, defining risk. Is you got to start with defining risk? Okay, cause risk, risk is different to different people. Now, this, there’s different flavors. Defining risk Okay, because risk is different to different people. Now, there’s different flavors of risk.

Shabbar: 

Okay, I don’t like the conventional idea that stocks and shares are risky, and you know this. Asset class is not risky, et cetera. Everything sits on a spectrum. There’s no binary black or white, but the three. If anyone wants to take away something from this is just be aware of the three flavors of risk and the way that I’ve sort of I actually haven’t come up with this myself, so I’ve nabbed it from someone else.

Shabbar: 

Um, but the three flavors of risk are the most pervasive one and the one that we need to worry about the most is what I’d call the ice one. Okay, now, the ice one, if you’ve ever been to a fancy wedding, is that beautiful swan made device in the middle and everyone comes in the morning and takes a picture with it and it’s just majestic, it’s beautiful. But as the day goes on and the wedding gets into the afternoon, you’ll suddenly start looking at the swan and thinking, crikey, that doesn’t look as majestic and beautiful as it did in the morning, right? Because obviously the heat means that the ice has started to melt and it’s sort of dripped away. That’s inflation, ladies and gentlemen. Yeah, inflation is the silent killer of wealth because you don’t notice it. Just like you don’t notice that you know, minute by minute, that ice one is getting disfigured until it’s like quite late on and then you realize, holy crap, what’s happened here. And it’s the same with inflation, because inflation eats away at the purchasing power, you know.

Shabbar: 

So we talked about money. You know money is actually purchasing power, because you know, having a hundred thousand pounds 20 years ago and a hundred thousand pounds today is completely different. You can’t give yourself a pat on the back for still having £100,000 if you had it 20 years ago, because you’re going to be buying half the stuff because of inflation. So our number one risk to our wealth is inflation. We’ve got to cotton on to that, and people don’t cotton onto that and people don’t.

Shabbar: 

And this whole idea of, you know, equities and bonds and you should have more bonds, you know, as you go into retirement, et cetera. There’s a lot of work to be done on that because there are a few myths around. You know what’s a bigger risk running out of money because you can’t afford to live the lifestyle that you want, because you’ve kind of just got the bonds, like at 80%, potentially. Well, fixed income means a fixed outcome. That’s the stark reality. So this whole idea that equities are risky okay, we need to put that into perspective.

Shabbar: 

So the first is inflation. The second is the turkey at Christmas. So the turkey, on its approach to Christmas, is loving life right, because it’s just riding high, it’s getting fat, it’s getting fed, it’s thinking that this is just the best time ever. And then boom, christmas comes, lights out to the slaughterhouse. What happened? It got, you know, destruction annihilated.

Shabbar: 

Now that’s the type of risk that we really need to be worried about. So that could be you know schemes, scams. You know something new on the scene that we don’t really be worried about. So that could be. You know schemes, scams. You know something new on the scene that we don’t really know too much about, which is just like going really, really, really high very, very quickly. Everyone piles in because of FOMO and human greed, et cetera, and it could be that that’s lights out, complete loss of capital. That is a very, very important risk to be aware of. So we’ve got to be aware of complete loss of capital because, like the turkey, there’s no coming back.

Shabbar: 

Then the third risk which we associate with the stock market is volatility. So volatility is is is the roller coaster, it, you know it’s up and down, it could be scary or fun, depending on you know your outlook, but at the end of the day, it’s always better to be strapped in, and that’s anything that’s volatile. You’ve got to stay strapped in because the premium, the return you get, is the volatility. That’s the price you pay. Yeah, so if you want a high return, generally, you’ve got to accept volatility. You’ve got to accept ups and downs, and the more ups and downs, the more of the, the more the reward, that’s the you know. Otherwise it wouldn’t make sense, right, you couldn’t have, you know, a high return with low volatility because you don’t get rewarded for that.

Shabbar: 

So those are the three types of risk and once you’ve started to acknowledge that, then you can start to build into your portfolio, right, ok, what am I now looking at? But again, it’s got to be, you know, the aim has got to be on the prize. And what’s the prize? Right, I need X, y, z at a certain point in time to make sure that I’ve got the life that I truly desire.

Shabbar: 

Now, if that involves, you know, keeping it in a 50 50 bond equity portfolio, if that means opening a business, if that means you know investing in something a bit more speculative, right, that’s the discussion that you need to have with your investment advisor or your financial planner, or whoever that is, so that you’re aware of what risk and I’m putting risk in inverted commas you need to take, because me outperforming you, james, is a nonsense, because we could sit there and say, well, if I got 10% return and you got 8% return, yeah, I’ve made the better investment because I’ve got a greater return.

Shabbar: 

But if I run out of money at the age of 70 and you run out of the money at the age of 75, well, what does it really matter? Whether I got 10% and you got 8%? We’re both broke because we haven’t invested in accordance with what was going to make sure we didn’t run out of money. So I think that we need to reframe it in terms of and I get it people want to earn more money in a quicker space of time. Who doesn’t, right? Everyone wants to earn more money and get more return in a short space of time, because that’s the human nature right. But unfortunately, if you don’t have your eye on what you’re trying to achieve, then you’re just going to be forever shooting at different things.

James: 

I love the analogy, shabbar. There’s about four or five in there and they’re going to stay with me because you know what you know the thing about stories they stay in people’s head and they’re super tangible as well. So thank you for those, and there is 110, some powerful lessons in there which will change everybody who’s listening their perspective on money going forwards, and thank you so much for articulating those very well today. Shabar, shabar, we are coming up to the 40 minute mark. We’re going to draw a line on the proceedings very soon. Shabbar.

Shabbar: 

Is there anything that you’d like to say in conclusion, just to wrap things up, from what you were saying today, I mean, look, I know that you know we were just talking about, you know sort of constructing a portfolio and what that should look like, etc. And it’s really a difficult question to answer and I’d like to sort of give the magic formula you know in terms of, you know in terms of asset classes, you know, I think it’s just worth just sort of talking about these. You know, traditionally the main asset classes that have always delivered above inflation returns because that’s the risk that we want to make sure because we’re maintaining our purchasing power are businesses in bricks, right and businesses great companies of the world. You could call it the stock market, however you want to dress it up, but businesses have always been a great place to invest because you get rising capital value and a rising income in the form of dividends, so you get total return. So that’s always been a great place. Now, obviously, you don’t invest in one or two companies, because that means you could be lights out, that could be the turkey. But you know, if you’ve invested in thousands of companies globally, you know you’re pretty, you’re pretty well placed, you know to make good returns and, history being our guide, that’s been the case. And property again rising value. So capital growth and rising rental income. So those have been the you know again, total return, you know, demonstrated over, you know hundreds of years. So those have been the sort of the two building blocks.

Shabbar: 

Now you’ve got, you know, more speculative assets. You know you’ve got commodities, you’ve got crypto, et cetera, and these are all sort of on the on the edge in terms of providing, you know returns et cetera, and that’s not something, for example, that I can sort of go into at the moment. But traditionally, you know, business and bricks have always been a very good growth asset for people. So I guess that you want to be thinking about, you know, okay, well, have I got those assets within my portfolio? And then it comes again how are you holding them in terms of you know the wrappers? And I can’t stress enough that for the majority of people, you know ISAs and pensions are all that they need. You know 95%. You know, within your ISA you can put £20,000 a year. Within your pension, you can put £40,000 a year. They’re so tax efficient. I don’t think there’s many people that I come across that are actually putting away £60,000 a year. You know, once you’ve got more than £60,000 to invest and put away. Then you can start thinking of. You know different other types of structures and wrappers, et cetera, but essentially you know those provide a very good, stable bedrock for anyone trying to build wealth for the future. Pensions do come with, obviously, their restriction in terms of when you can take them, but they’re so damn tax efficient. You know there’s such an uplift and the benefit of the tax-free growth and the inheritance tax benefits et cetera, that you know I’m very passionate, especially for business owners as well.

Shabbar: 

So I think you know people just to get a grip of. You know what they’ve got, where they’re headed, is really important. And then you know not paying too much for your investments. Cost is one of the major drivers of returns and people. You know there’s a lot of.

Shabbar: 

You know debate, active versus passive, and you just need to go and read and read the academic stuff and even sort of like the journalistic stuff, that there’s an overwhelming evidence towards you know not overpaying for your investment solutions because that’s going to be detrimental to your long-term growth as well. So I think that’s really important. You know, as on your journey to being a disciplined investor and being a sensible investor is, you know, not giving into the noise and all of the you know, the marketing and everything that’s around us. It’s always trying to pull us in a certain direction. It’s very counterintuitive when it comes to investing, because in all walks of life we’re told that, you know, you pay more for more quality, when with investments it’s kind of the opposite the less you pay, the more you get, and that’s very counterintuitive. So I think that’s, you know, that’s something important to bear in mind 110%.

James: 

This podcast has been full of gems. Shabbar, thank you so much for your time. For anybody who is interested in reaching out to Shabar, shabar is on the group Shabar Kassam Feel free to reach out. If anything that Shabar today said that you felt resonated with you and you would like to explore further with Shabar the 110%, that’s something that you can do. If you find Shabar on the group Cool, all right then. So I think that that brings us to a very nice conclusion, as I said earlier.

James: 

Thank you so much for joining us today on the Dentist New Invest podcast. Shabbar, thank you so much for giving up your time and I hope you have a tremendous Thursday. What’s left of it? Cheers James. Take care, buddy. If you enjoyed this podcast, please hit follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free Facebook community from which the podcast originated. Please search Dentists who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well-being and investing knowledge. Looking forward to seeing you on there.

James: 

Fans of the Dentist who Invests podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentist who Invests podcast episodes that really, really, really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me. What that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein. Welcome. Welcome to the Dentists who Invest podcast Record. What’s good everyone.

James: 

Welcome back to another episode of the Dentists who Invest podcast. We are super privileged today to be joined by Shabbar Kassam, who is here to talk about something a little bit more ethereal than we normally talk about. We’re usually very matter of fact nuts and bolts the mechanics of investing, but today we want to talk about the philosophy of investing and the mindset one. We want to talk about the philosophy of investing and the mindset one must have to be a successful investor in the long run. Shabbar, how are you?

Shabbar: 

I’m very good, james. Thank you very much for having me on and, as it’s a kind of a co-episode, I’m also going to be sharing this with my audience on the Understanding Financial Freedom podcast. So welcome to the listeners there. But, yeah, super excited to be on. I’ve been checking out the Facebook group and all of the good stuff that you’re doing and there’s a real buzz around dentists that want to know more about investing and all of that jazz. So, yeah, so this should be quite fun.

James: 

Thanks, man. No, definitely, I can see this being a value-packed episode and, like I say, I’m really interested to hear this slant on investing, because it is something that, as yet, we have not discussed. So, and yes, also shout out to your listeners as well, shabbar. Shout out to me, james, the host of Dentistry Invest podcast, and, yeah, this will be a good one. This will be one I’ve been looking forward to for a while. So, shabbar, would it be okay with you if you did a little bit of an introduction for my listeners in the Dentsu Invest podcast, so they can get to know you?

Shabbar: 

Yeah, absolutely so. As you said, I’m a financial advisor set up Lumos Financial Towards the end of 2020, just decided that, after being in financial services for sort of 15 years an independent financial advisor since 2012, but always under someone else’s brand it was time to take the plunge and have my own name above the door. So, yeah, I’ve had enough of doing it someone else’s way and it was like right now it’s time to do it my way and bring my values and my philosophy to the world of financial planning and investing and helping clients. So, yes, so that’s. You know, that’s what I did, and we focus primarily on helping sort of business owners and individuals approaching retirement generally have more peace of mind and clarity over their financial future, which, in retirement, generally have more peace of mind and clarity over their financial future. So I guess that encapsulates, you know, finding out what they want, the lifestyle that they desire, and then helping them get it, and you know we’ve been pretty good and successful with helping those types of people along the way.

James: 

This is it, and this is why I was looking forward to having you on the podcast, shabar, because, like I say, what is often overlooked in the mindset of an investor is just how important it is to have the right psychological stance and viewpoint and how that is actually fundamentally and inextricably linked to becoming financially free, financially independent in the long run. And I’ll just share a little analogy on that one to illustrate its power. We were talking about this just before we jumped on the air, just off camera. For anybody who hasn’t heard this, this is an interesting way of looking at money and this is why mindset is so important, and Shabbar is going to flesh this out in more detail in just a moment.

James: 

My analogy would be there’s always the Joneses to keep up with and no matter how wealthy you are, you can always find somebody to be competitive with and spend your money on. So therefore, you must, you must, must, must, must, must, you must be restraint. You must illustrate yourself to be someone who has restraint, because you can only keep up with people. There’s always going to be the next successive person to keep up with in terms of spending your wealth. So let me just flesh that out. So let’s say you live next door to the Joneses and let’s say the Joneses get a cool car and you want to get a cool car as well. So you’re going to spend a little bit more money to get that cool car.

James: 

Okay, but what happens when you transcend the financial means of your next door neighbors? There’s always going to be the even wealthier neighbors down the street and they’re going to have a Lambo. Okay, so by the time you get a Lambo, you’re going to be keeping up with them. You’re going to be wanting to do that to keep up with them. But let’s say you’re very fortunate in life and you become very wealthy.

James: 

Then, if you can afford a better car than the Lambo you’re, always you’re going to be trying to keep up with someone like Jeff Bezos and he’ll have a super yacht, and then, therefore, you’re continually playing that game as soon as you enter into the world of being somebody who wants to keep up with the Joneses keep up with the next door neighbor you can never, ever win, because there’s always a black hole.

James: 

There’s always something else that you can spend your money on, and this is why showing restraint and this is why educating yourself on these psychological phenomenons are so important for your long-term financial success. And, on that note, I wanted to ask Shabbar how much money is enough money and at what point do we begin to save so that we don’t fall into the hedonic treadmill as you put it off camera, which is the term for what I’ve just described, so that we don’t fall into that psychological pitfall and then, therefore, can begin to save prudently for our long term financial goals? How much money is enough money? How is your perspective on that matter? How does that color your investments?

Shabbar: 

perspective on that matter. How does that color your investments? Yeah, I mean, look, this is where it all starts, right, this is just, you know, uh, base camp. You know we you can’t. You know we speak to a lot of people in the line of work that we do, um, where it’s.

Shabbar: 

You know you need to need to make more money. You know, need to get a return, need to invest what’s the quickest way, what’s the best way, what’s the most foolproof way? You know what’s the new way, and there’s always quite a burning desire to get more right and, like you know, like you said, is to get more. That’s not a goal, okay, um, and so the the idea of what what I try and do with clients is to find out, well, how much is enough. Now, enough is different to different people, okay, and there’s no judgment, because only an individual can really say how much is enough, but I feel that it’s very, very linked to the values that an individual holds. And the reason why I say that is because, when we look at money, what is money? Ok, money is just a tool. People confuse money with a lot of things that it actually isn’t. You know. You know back in the. You know back in.

Shabbar: 

You know, centuries ago, when there wasn’t money, me and you would have traded our respective goods and services that we provide in order to, you know, have a living. So you know, if you know you fix teeth and I provided sort of advice around, around finances or whatever it would be, well, there wasn’t even any money. So so let’s say I was a shoemaker, you know we would exchange, you know you check my teeth and I would provide you with a pair of shoes, right? So there was never this real, you know, there was never this real thing of like more and more money, right? So it comes down to the consumption levels that we want, the lifestyle that we want, and that could be a bottomless pit, as you say. So it’s only when we really explore who we are, what’s important to us and what values we hold can we even start to answer the question of how much is enough. Because if I want to be in a situation where I can help not only my family have a good lifestyle and I’ve got to define good, you know so good for different people will mean different things, but it could be that actually, what’s really at my core is helping people that are less fortunate and that’s going to require a certain amount of money. So, actually, you know, enough starts to move, depending on what I want to do with with my life.

Shabbar: 

But acquiring money just for the sake of acquiring money, because you want greater consumption, because you’re chasing some sort of happiness, that’s where you’re going onto the hedonic treadmill, because you believe that your happiness, your validation, lies in the consumption of more. And, as we know, human beings, we’re incredibly greedy creatures and that goes back down, you know, to to our sort of primal instincts, which has always been that you know you’ve got to hunt and gather and stock up because you don’t know when your next meal’s going to come. And we’re still kind of in that mentality at the moment because our brains haven’t evolved, because we’ve got an abundance around us, so we actually don’t need to hoard um. So there’s that one aspect of the fact that the human being is kind of programmed to be greedy, um, because otherwise you’d starve and die and that wouldn’t be good for the you know progression of the of the race. But also another thing that you mentioned, which was, you know, which was this keeping up with the Joneses? That also has its sort of history in man’s sort of like tribal days, because if you didn’t keep up with the tribe, if you weren’t accepted by the tribe and you became an outcast, you would again then be in very serious danger of potentially dying because you wouldn’t get.

Shabbar: 

You know, if you weren’t of a certain social status within that tribe, you could be left out. You know, the opportunities to progress and provide for you and your family would be diminished because you didn’t have that social status. And we kind of suffer from that as well, which is what you were referring to with the car and keeping up with the Joneses, because if we don’t, maybe we’re less than maybe we get excluded, and if we get excluded that’s detrimental to the progression for us within society. And so it all comes down to these core needs which we haven’t just quite figured out. That you know actually, there haven’t just quite figured out that.

Shabbar: 

You know actually there isn’t a lot of happiness in just going after the next shiny thing, because it’s actually really damaging, both from a psychological perspective of always wanting more, but financially we’re never going to reach a point where we’ve got financial freedom or financial independence. Because you know we’re splashing out and continuously spending money and there’s a very, you know there’s a very good saying is you know, you know what’s the difference between being rich and wealthy, right, so you know you could earn 250 grand a year and you think that you’re wealthy, but actually you’re rich if you spend all of that money, because all it is is, you know, money coming in, money going out, you’re not building wealth, um. But you know, true wealth is the ability to have time to do what you want when you want, because you’ve got income. That’s passive, right, that’s true wealth. So, yeah, that’s you know. That’s a long answer to a very deep and important question.

James: 

It’s great, though, because now you’ve pointed out that that’s actually a manifestation of our deep set reptilian part of our brain. Okay, but now we’re so much better. We’re homo sapiens, we’ve got a prefrontal cortex. Now we can rationalize these thoughts, and when we can see it in ourselves, that is so powerful. The values that you spoke about as part of your journey with the client is that something that you go into, that you ascertain what are those values?

Shabbar: 

Yeah. So again, you know, an initial sort of meeting or chat with a client is very much around. You know what’s important to them. Because until you know what’s important to them, you know a client may come with an investment problem. You know, I don’t understand a pension, or I don’t know what ISA to you know fund to invest in, or it could be about crypto, or you know all of the new stuff that’s around and people are sort of, yeah, you know, am I, you know, missing out on something, et cetera.

Shabbar: 

Whatever, the question is that’s not what they’re really after. You know, underneath is a question of am I going to be okay, you know, because that’s what’s really bothering someone. Am I going to have enough? That’s why the pension problem is a problem. It’s because people don’t know if they’ve got enough, what does this pot represent? Can I get better returns? Because obviously people are concerned about whether they’re going to be able to afford stuff in the future. So if you just dive in and solve that problem, you’re not addressing the deeper problem, which is the insecurity or the fear or the worry, and that’s linked quite often to their value. So you’ve got to uncover them, and the way we do that is just, you know, by asking sort of really important questions, um, that will help someone to to basically engage their heart more and sort of disengage maybe their you know that reptilian brain.

James: 

Um so yeah, it’s uh, it’s all about questioning and having a deeper understanding of the individual, and we’ve got sort of certain questions that we can ask to help that, like a coach would and what you’re also saying is, when you don’t have objectives, it can be self-sabotaging and, by the pure, unadulterated obsession of chasing money in itself, if we even know that that might have the pseudo appearance of somebody who is driven and will therefore be financially successful, that actually may not be the case until you have some cold, hard, cemented objectives and points that you can reach, so that, therefore, you can know that you’re on track, and also so you don’t get carried away with your spending. That’s also your point as well, which is great, which is great to hear and that will no doubt resonate with lots of people, and I can see that in myself at lots of points during my life. Why else is it important to have direction? Real quick, guys.

James: 

I’ve put together a special report for dentists entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. Whenever it comes to their finances, most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdentistuninvestcom. Forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them. I’m really looking forward to hearing your thoughts yeah it.

Shabbar: 

It’s so important because, just like on any journey, right, if you don’t, if you don’t know where you’re headed, you’re often going to get lost and sidetracked and that and that’s in sort of many, many areas, um, and it’s really important to have that sort of sense of it’s not going to be perfect, right, because the landscape changes and things change, but especially when you investing, you’ve got to have a goal that you want to achieve, because how are you going to assess that you’re getting nearer that goal? Or, if you’re further away, are you on track or you’re off track? So it’s really important once, for example, values are defined, what’s the lifestyle that you want? Ultimately, that’s a lot of it coming down to the lifestyle that an individual wants for them or their family, and that could be, you know, different things to different people. But once you’ve got that and that could be a numerical that I need to spend, you know, 50 grand a year in. You know, passively, or it could be that I need to put the kids through university and then I need to take care of my parents and then I need to give so much to charity, because that’s going to be aligned to my values Once you’ve got all of that there.

Shabbar: 

You can then know that you’re on that path to hitting those goals and you’re able to assess how far or how near to them you are. And it’s nice to have a finish line, because generally we’re in a rat race, aren’t we? And I don’t know about you, but I’m trying to exit the rat race as fast as possible, you know that’s, and then that will allow me the opportunity to do the things that I truly love doing. Work is one of them, but obviously my time of focus is more on my work, like the majority of us you know at the moment, and it would be nice to then have you know that future goal you know in sight and working towards it.

James: 

I love it, I absolutely love it, and you know what that actually tied in with the next thing I wanted to bring up, because you give us some tangible examples of what a plan might look like. So, donating X amount to charity, having X amount of money within X amount of time, are those two common ones? Are those the most common ones? What does a plan look like in more detail?

Shabbar: 

Okay, so, yeah, financial planning is a sort of it can mean different things to different people, but essentially, like the example that I give usually I draw this out but obviously, being a podcast, it’s not going to but if you imagine, we’ve all got a bucket, ok, so, james, you’ve got a bucket, I’ve got a bucket. But if we talk about your bucket, inside your bucket at the moment, you’re going to have assets that if I asked you listen, get your hands on some money you could turn to your bucket because it’s pretty liquid. So you might have some cash, you might have some stocks and shares in ISAs, you may have some crypto, for example, and you would be able to cash that in within a short period of time. So you’ve got assets inside your bucket. But then you might also have assets that are outside of your bucket, for example, property. Now, property is outside of your bucket because you suddenly can’t sell a couple of bricks to go on holiday to the Bahamas. So you’ve got an asset and you’ve got a buy-to-let property, maybe again outside of your bucket because you can’t access it. You’ll then have, potentially, pension pots which are outside of your bucket. Again, you can’t get hold of that money at the moment, until a later point in time, and then you’ve got your business. Now that could be your biggest asset, but again, until you sell it in the future, it’s an asset that’s kind of outside your bucket.

Shabbar: 

Now what financial planning does, is it then looks at what you’ve got assets, what you’ve got inside your bucket, outside your bucket, and then you’ve got inflows so you might be earning income, so you might be taking salary and dividends, you may receive child benefit, you might be receiving rental income, so your bucket’s filling up all the time, which is fantastic. But then at the bottom we’ve all got these taps okay, which is leaking money out of our bucket. So you know, the biggest tap at the moment is your current lifestyle. So you know, for me it’s taking care of my family, paying the mortgage, going on the odd holiday. You know food, water, electricity, charitable donations, playing football, going to support Crystal Palace, and you know, watching the odd game going to support Crystal Palace, and you know watching the odd game, and that’s my lifestyle. And then at some point in the future, that tap’s going to turn off and when the kids have buggered off and it’s just me and my wife, we might want to do some more extravagant things, you know, with the time that we’ve got, and so we’ll have a sort of a retirement tap, which will then be more money that we want to spend, more holidays, more charity, more things for our legacies, you know, whatever it is that we want to do. But then that will turn off and then it will be our later life tap that turns on and we’re not going to be doing a lot later on in life because we’re probably going to be too old to travel and it will be sort of, you know, fairly soon before we kick the bucket.

Shabbar: 

Kick the bucket Financial planning is helping a client look at their bucket and be able to answer the really important questions around well, what’s happening with this bucket year on year, and making sure that your bucket doesn’t run out, because if it runs out, that means you’ve got to turn off the taps completely and there’s no lifestyle.

Shabbar: 

But also you don’t want to die with too much in your bucket because if you do, after all the years of paying all the taxes that we do in this country, the biggest tax of them all, which is inheritance tax, might be there to sting your loved ones at 40%.

Shabbar: 

So dying with too much is an issue dying with too much is an issue.

Shabbar: 

So managing all of your assets how to live a lifestyle that is in line with your values and that’s going to make you the happiest person, but also doing it tax efficiently in a way that’s going to provide you with the money that you need later on in life, and also making sure that, if God forbid, anything happened, anything happened to you and you died or you’re sick or you can’t work that’s what financial planning is.

Shabbar: 

So having a financial plan is actually aligning your bucket to what you want to achieve, and that’s an ongoing process, because all of those little parts that I’ve just explained are moving all the time. The inflows are changing, the asset values are changing, the legislation around the tax efficiency of all of the bits within your bucket are changing. What you spend is changing as well. So this is like a moving jigsaw piece, and that’s why people do need advice at some point in their life, because it’s just like well, what the hell is going on with my bucket and hopefully you’re doing the right and sensible things to make sure that you know you can live the lifestyle that you want and you don’t run out of money I love the bucket analogy.

James: 

I love the bucket analogy because it makes it super tangible and understandable, and I love the taps at the bottom as well, because it’s really easy to visualize the water going in and the water coming out. And also key thing to understand is that there is such a thing as having too much water in your bucket as well, because then, so to speak, it overflows and you get stung by tax inheritance tax.

Shabbar: 

There we go and I should have just mentioned. But worse than that, james, is that you know, if you die with too much money in your bucket, you’ve got to look back and think what the hell did I miss out on? What did I not do? Who did I not help? You’re just unfulfilled. You were put on this earth and you could have done something grand because you were one of the blessed ones with a bucket that was like overfilling and you’ve gone to your grave and you’ve left it for people, which is which is fine, but you know what?

Shabbar: 

And you know poverty and had real hard graft because they haven’t grown up in the sort of the tech boom that we have, where we’ve had kind of everything you know, and they’ve had to really, you know graft for stuff and it’s really hard for them to to now spend the money because they were so used to not spending and just being savers. Whereas you know, our generation are a bit the opposite. Or you know the millennial, you know Gen X and what have you coming up? I think I’m a millennial, but yeah, you know, and it’s almost like slightly different with them, and I see clients now with so much money that are fearful to spend, because and I’m like, do like, do you know what? Look, we’re doing your planning. I’m looking at your bucket.

Shabbar: 

You know, even if you turn these taps way up and you spent a hell of a lot of money, you’re still not running out. Yeah, because you know we can do all the maths and the modeling and and all of that analysis. But again, you know it’s how you’re brought up. You know money is just an emotional thing, so it, you know, and and the interesting, because you know people make some really rash decisions when it comes to their money. You know, and um, yeah, and that’s why you know sometimes, you know good financial advice and financial planning is is worth its weight in gold, because it sometimes gets you to where you wouldn’t be able to get to on your own and you know what that ties in, really interestingly shabar with a book that I read not terribly long ago called the psychology of money, and it highlighted the fact that have you?

James: 

have you read it?

James: 

I see a smile, oh mate, it’s, it’s a, it’s a classic, it’s an absolute gem loved it and, by the way, they must have updated it recently because it talked about coronavirus in it. So they must. It must be a like a new edition or something that I read anyway. So in that book you’ve actually somewhat touched upon this already it points out that each one of us will never be able to fully empathize with someone else’s vision on money, someone else’s perspective on money, and that’s because we haven’t lived their life.

James: 

So you might know someone, you might have a close friend, and you might say, god, aren’t they tight-fisted, they wouldn’t spend it Christmas, but in reality you can never compare your life to theirs, because they might’ve grown up in abject poverty and they might look at you and they might say, how frivolous is that person with their money, but they’ll not be able to truly see things from your perspective, because money for you as a young person, as a younger person or when you were growing up, may have been something that was more transient or may have been something that you came across easily. It’s a mindset thing, and that is something that we don’t attribute necessarily to money, because we tend to think of it as a cold, hard statistic. But this is something worth talking about and pointing it out, and perhaps you mightn’t recognize it until you speak to someone else. I love the philosophy of the money. I think it’s absolutely fascinating. Anything you’d like to chuck on top of that.

Shabbar: 

No, mate, we all have our own money story. Know, I’ve got mine, you know I went. You know years of thinking, especially with religion as well. So you chuck in sort of your money story from your cultural background, then your religious beliefs and money just becomes this whole toxic little ball of mess that you just have to spend a lot of time unpackaging, because otherwise you do jump on on one of the two extremes, which is either that constant search for something new and shiny, potentially to almost, you know, fill a void, or something like that, or you know, you, you don’t spend.

Shabbar: 

The money doesn’t bring you any happiness. When you know, when you look at it, money is love and energy. Because you know, when you look at it, money is love and energy. Because you know when you spend money generally, you know if I’m spending on my family, I’m kind of displaying love, I’m providing for them, I’m doing good. You know, if it’s for charity as well, if it’s for myself as well, it’s self-love, it’s self-care. You know, if I treat myself to something, you know there’s nothing wrong with that. You know, treat myself to something, you know there’s nothing wrong with that. And and again, you know money is kind of energy because we go to work and all that money represents is that you know the energy that we’ve expended in our work. We get rewarded for that energy, you know, in the form of a currency. So it’s kind of like stored energy that we then in the form of a currency. So it’s kind of like stored energy that we then, you know, transfer to each other.

James: 

So that’s Capital is stored labor Capital is stored labor is another way of putting that.

Shabbar: 

Yeah, so again, so you know we’re looking at it’s just how you look at it and everyone’s got their own different story. Yeah, and you know my story was one where I witnessed, you know my parents were well off and they were doing really well and then, you know, made financial mistakes and caused, you know, a lot of financial ruin and heartache. And you know, I saw that and you know, caused, you know, a real issue. We lost our family home as a result of that real issue. We lost our family home as a result of that, and so that played a really big part in my own sort of view of money and kind of made me just shun it away.

Shabbar: 

And you know, no, I don’t want to, don’t want to deal with money, I don’t really want to look at it. I think it’s evil, I think it’s rotten it. Look what happened we. You know all of this bad stuff and and that. And that was just my own story because obviously, in an experience that I’d had, and now it’s sort of like the flip, because now what I do dealing with money on a daily basis in people’s financial futures is that actually now my sort of mission and aim is to stop people from following in the same mistake. You know that. You know that happened to my, to my parents as well. So now I’m like I’ve used that story now to help me, help other people not make sort of similar mistakes. Um, so it’s just weird the way it works right, um, and and it’s often our own work that we need to do with that story oftentimes it’s key, seminal moments like that, like that was one event that colored your perception of money for the rest of your life.

James: 

And there’ll be others in the audience listening who think to themselves actually, maybe I have this misconception of what money is because of one seminal moment that was perhaps very fortuitous or perhaps completely misfortune. And it’s an interesting way because if you can extract your perspective from that, then at that point, if you can truly emancipate yourself from that one feeling or that one event in your life that made you feel that way, would you necessarily view money the same way? So, are you using that one event, are you coloring your whole perception through this one event? Now, I’m not saying that’s right, I’m not saying that’s wrong. All I’m saying is it’s an interesting perspective, right.

Shabbar: 

Yeah, absolutely, and that’s the thing. There can’t be any judgment in this at all because, like you said, it’s people’s own story. But the story needs to be unpacked because sometimes it can be a damaging belief.

James: 

There you go, absolutely, absolutely. That’s so interesting. 110%, that’s going to hit home with somebody listening.

James: 

Tonight we are going to change gears slightly and talk about something else also related to money, but I want to ask your perspective on it, shabbar, risk versus reward that’s the unending seesaw or balance that we must understand to grow our money but also not over-leverage ourselves. Where do you see risk fitting in in somebody’s long-term financial planning? Do you think that it’s reasonable to say for most people that they should be as risk averse as possible and invest in stocks, invest in their ISA, invest in bonds, have that steady Eddie, high single digits, low double digits return every year? Or do you think it’s worthwhile that everybody should allocate maybe 10, 20% of their capital to something more speculative in the hope but not the guarantee that it may allow them to achieve financial freedom when they’re a lot younger? So say, let’s put in the speculative bracket, let’s put something in there like starting a business, or let’s put something in there like invention, inventing in a venture capital trust or something like that. Where does that fit in?

Shabbar: 

Okay. So I think, firstly, defining risk. Is you got to start with defining risk? Okay, cause risk, risk is different to different people. Now, this, there’s different flavors. Defining risk Okay, because risk is different to different people. Now, there’s different flavors of risk.

Shabbar: 

Okay, I don’t like the conventional idea that stocks and shares are risky, and you know this. Asset class is not risky, et cetera. Everything sits on a spectrum. There’s no binary black or white, but the three. If anyone wants to take away something from this is just be aware of the three flavors of risk and the way that I’ve sort of I actually haven’t come up with this myself, so I’ve nabbed it from someone else.

Shabbar: 

Um, but the three flavors of risk are the most pervasive one and the one that we need to worry about the most is what I’d call the ice one. Okay, now, the ice one, if you’ve ever been to a fancy wedding, is that beautiful swan made device in the middle and everyone comes in the morning and takes a picture with it and it’s just majestic, it’s beautiful. But as the day goes on and the wedding gets into the afternoon, you’ll suddenly start looking at the swan and thinking, crikey, that doesn’t look as majestic and beautiful as it did in the morning, right? Because obviously the heat means that the ice has started to melt and it’s sort of dripped away. That’s inflation, ladies and gentlemen. Yeah, inflation is the silent killer of wealth because you don’t notice it. Just like you don’t notice that you know, minute by minute, that ice one is getting disfigured until it’s like quite late on and then you realize, holy crap, what’s happened here. And it’s the same with inflation, because inflation eats away at the purchasing power, you know.

Shabbar: 

So we talked about money. You know money is actually purchasing power, because you know, having a hundred thousand pounds 20 years ago and a hundred thousand pounds today is completely different. You can’t give yourself a pat on the back for still having £100,000 if you had it 20 years ago, because you’re going to be buying half the stuff because of inflation. So our number one risk to our wealth is inflation. We’ve got to cotton on to that, and people don’t cotton onto that and people don’t.

Shabbar: 

And this whole idea of, you know, equities and bonds and you should have more bonds, you know, as you go into retirement, et cetera. There’s a lot of work to be done on that because there are a few myths around. You know what’s a bigger risk running out of money because you can’t afford to live the lifestyle that you want, because you’ve kind of just got the bonds, like at 80%, potentially. Well, fixed income means a fixed outcome. That’s the stark reality. So this whole idea that equities are risky okay, we need to put that into perspective.

Shabbar: 

So the first is inflation. The second is the turkey at Christmas. So the turkey, on its approach to Christmas, is loving life right, because it’s just riding high, it’s getting fat, it’s getting fed, it’s thinking that this is just the best time ever. And then boom, christmas comes, lights out to the slaughterhouse. What happened? It got, you know, destruction annihilated.

Shabbar: 

Now that’s the type of risk that we really need to be worried about. So that could be you know schemes, scams. You know something new on the scene that we don’t really be worried about. So that could be. You know schemes, scams. You know something new on the scene that we don’t really know too much about, which is just like going really, really, really high very, very quickly. Everyone piles in because of FOMO and human greed, et cetera, and it could be that that’s lights out, complete loss of capital. That is a very, very important risk to be aware of. So we’ve got to be aware of complete loss of capital because, like the turkey, there’s no coming back.

Shabbar: 

Then the third risk which we associate with the stock market is volatility. So volatility is is is the roller coaster, it, you know it’s up and down, it could be scary or fun, depending on you know your outlook, but at the end of the day, it’s always better to be strapped in, and that’s anything that’s volatile. You’ve got to stay strapped in because the premium, the return you get, is the volatility. That’s the price you pay. Yeah, so if you want a high return, generally, you’ve got to accept volatility. You’ve got to accept ups and downs, and the more ups and downs, the more of the, the more the reward, that’s the you know. Otherwise it wouldn’t make sense, right, you couldn’t have, you know, a high return with low volatility because you don’t get rewarded for that.

Shabbar: 

So those are the three types of risk and once you’ve started to acknowledge that, then you can start to build into your portfolio, right, ok, what am I now looking at? But again, it’s got to be, you know, the aim has got to be on the prize. And what’s the prize? Right, I need X, y, z at a certain point in time to make sure that I’ve got the life that I truly desire.

Shabbar: 

Now, if that involves, you know, keeping it in a 50 50 bond equity portfolio, if that means opening a business, if that means you know investing in something a bit more speculative, right, that’s the discussion that you need to have with your investment advisor or your financial planner, or whoever that is, so that you’re aware of what risk and I’m putting risk in inverted commas you need to take, because me outperforming you, james, is a nonsense, because we could sit there and say, well, if I got 10% return and you got 8% return, yeah, I’ve made the better investment because I’ve got a greater return.

Shabbar: 

But if I run out of money at the age of 70 and you run out of the money at the age of 75, well, what does it really matter? Whether I got 10% and you got 8%? We’re both broke because we haven’t invested in accordance with what was going to make sure we didn’t run out of money. So I think that we need to reframe it in terms of and I get it people want to earn more money in a quicker space of time. Who doesn’t, right? Everyone wants to earn more money and get more return in a short space of time, because that’s the human nature right. But unfortunately, if you don’t have your eye on what you’re trying to achieve, then you’re just going to be forever shooting at different things.

James: 

I love the analogy, shabbar. There’s about four or five in there and they’re going to stay with me because you know what you know the thing about stories they stay in people’s head and they’re super tangible as well. So thank you for those, and there is 110, some powerful lessons in there which will change everybody who’s listening their perspective on money going forwards, and thank you so much for articulating those very well today. Shabar, shabar, we are coming up to the 40 minute mark. We’re going to draw a line on the proceedings very soon. Shabbar.

Shabbar: 

Is there anything that you’d like to say in conclusion, just to wrap things up, from what you were saying today, I mean, look, I know that you know we were just talking about, you know sort of constructing a portfolio and what that should look like, etc. And it’s really a difficult question to answer and I’d like to sort of give the magic formula you know in terms of, you know in terms of asset classes, you know, I think it’s just worth just sort of talking about these. You know, traditionally the main asset classes that have always delivered above inflation returns because that’s the risk that we want to make sure because we’re maintaining our purchasing power are businesses in bricks, right and businesses great companies of the world. You could call it the stock market, however you want to dress it up, but businesses have always been a great place to invest because you get rising capital value and a rising income in the form of dividends, so you get total return. So that’s always been a great place. Now, obviously, you don’t invest in one or two companies, because that means you could be lights out, that could be the turkey. But you know, if you’ve invested in thousands of companies globally, you know you’re pretty, you’re pretty well placed, you know to make good returns and, history being our guide, that’s been the case. And property again rising value. So capital growth and rising rental income. So those have been the you know again, total return, you know, demonstrated over, you know hundreds of years. So those have been the sort of the two building blocks.

Shabbar: 

Now you’ve got, you know, more speculative assets. You know you’ve got commodities, you’ve got crypto, et cetera, and these are all sort of on the on the edge in terms of providing, you know returns et cetera, and that’s not something, for example, that I can sort of go into at the moment. But traditionally, you know, business and bricks have always been a very good growth asset for people. So I guess that you want to be thinking about, you know, okay, well, have I got those assets within my portfolio? And then it comes again how are you holding them in terms of you know the wrappers? And I can’t stress enough that for the majority of people, you know ISAs and pensions are all that they need. You know 95%. You know, within your ISA you can put £20,000 a year. Within your pension, you can put £40,000 a year. They’re so tax efficient. I don’t think there’s many people that I come across that are actually putting away £60,000 a year. You know, once you’ve got more than £60,000 to invest and put away. Then you can start thinking of. You know different other types of structures and wrappers, et cetera, but essentially you know those provide a very good, stable bedrock for anyone trying to build wealth for the future. Pensions do come with, obviously, their restriction in terms of when you can take them, but they’re so damn tax efficient. You know there’s such an uplift and the benefit of the tax-free growth and the inheritance tax benefits et cetera, that you know I’m very passionate, especially for business owners as well.

Shabbar: 

So I think you know people just to get a grip of. You know what they’ve got, where they’re headed, is really important. And then you know not paying too much for your investments. Cost is one of the major drivers of returns and people. You know there’s a lot of.

Shabbar: 

You know debate, active versus passive, and you just need to go and read and read the academic stuff and even sort of like the journalistic stuff, that there’s an overwhelming evidence towards you know not overpaying for your investment solutions because that’s going to be detrimental to your long-term growth as well. So I think that’s really important. You know, as on your journey to being a disciplined investor and being a sensible investor is, you know, not giving into the noise and all of the you know, the marketing and everything that’s around us. It’s always trying to pull us in a certain direction. It’s very counterintuitive when it comes to investing, because in all walks of life we’re told that, you know, you pay more for more quality, when with investments it’s kind of the opposite the less you pay, the more you get, and that’s very counterintuitive. So I think that’s, you know, that’s something important to bear in mind 110%.

James: 

This podcast has been full of gems. Shabbar, thank you so much for your time. For anybody who is interested in reaching out to Shabar, shabar is on the group Shabar Kassam Feel free to reach out. If anything that Shabar today said that you felt resonated with you and you would like to explore further with Shabar the 110%, that’s something that you can do. If you find Shabar on the group Cool, all right then. So I think that that brings us to a very nice conclusion, as I said earlier.

James: 

Thank you so much for joining us today on the Dentist New Invest podcast. Shabbar, thank you so much for giving up your time and I hope you have a tremendous Thursday. What’s left of it? Cheers James. Take care, buddy. If you enjoyed this podcast, please hit follow or subscribe so you can stay up to date with information on new podcasts which are released weekly. Please also feel free to leave a positive review so others can learn about this podcast and benefit from it. I would also encourage any fans of the podcast to sign up to the free Facebook community from which the podcast originated. Please search Dentists who Invest on Facebook and hit join to become part of a community of thousands of other dentists interested in improving their finances, well-being and investing knowledge. Looking forward to seeing you on there.

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