Thinking Ahead and Planning For Your Future

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Posted in Money Tips
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

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My guest today is Shamez Kassam, a financial advisor based in Calgary who has just published his first book, Your Money’s Worth: The Essential Guide to Financial Advice for Canadians.

Shamez wanted to write a book that acted as a road map for how the Canadian financial advice industry worked. There's only so much you can learn within the traditional educational institutions. Shamez himself tried learning on his own before losing it all in the tech bubble. That's when he decided to go back and do his MBA in New York.

The Millennial Conundrum

Younger generations or anyone who is just starting out have a lot of challenges to overcome to succeed financially. Debt loads are high, job security is low, and student debt is higher than ever. Our Joe Debtor study found that millennials are the most likely of all age groups to use payday loans. So they're not only operating within unsecured territory, but they're adding volatile, high-interest debts to their list of challenges.

Low income and no emergency funds leads an increasing amount of debtors between the ages of 18 and 29 to insolvency.

Start Planning Today

If you're a millennial, a parent, or grandparent of a millennial, there is still hope. You can start to plan for your future by taking some of Shamez's practical advice.

Get Educated - Use as many resources as you can to become well versed within the financial industry. Shamez recommends financial advisors over investment advisors because they look at a broader range of products to suit your needs.

Invest Early - Take advantage of compound interest. The earlier you start to invest, the longer your investments will have to mature. Less debt means more money in your bank account working for you.

Pay Attention to Fees - In the investment world, or even traditional banking, there is always a fee associated with a service. Whether it's trade or transaction fees, shop around and make sure you're getting the best rate. If you're planning on investing over a long period of time (and it's recommended that you start early), these can quickly add up.

What's Changing?

Shamez says there are a lot of changes headed towards Canadians. Something we've talked about before are fluctuating interest rates. Right now they're at all-time lows, but could your budget withstand a spike?

There are factors within Canada as well as internationally that could affect our investments, as well as our real estate climate. Shamez says it's time to be prepared for a slow growth economy. That means be aware of your finances and keep debt to a minimum. Lastly, always, always, save for that rainy day.

Resources Mentioned in the Show

FULL TRANSCRIPT show #136 with Shamez Kassam

thinking-ahead-plan-for-future-transcriptDoug Hoyes: Today we're going to talk about thinking ahead and planning for your future. My guest has a new book out and here's what the publisher says about his book, “this book is a must have and must read for every investor, young and old. It's comprehensive with practical advice for every stage of life. It is especially important for millennials who have received little education on managing their finances, planning for the future and saving”.

As regular listeners to this show know, millennials are one particular age group that's facing significant challenges. As we reported in our new Joe Debtor report last week, young millennials are increasingly turning to payday loans as they struggle to keep up with student loan repayment and living expenses on a low income. The percentage of insolvent debtors who are between the ages of 18 and 29 is increasing.

Young debtors have the lowest debt-to-income of all age groups but what is of greater concern is the type of debt they have. An increasingly percentage of millennial debtors carry significant student loan debt. Living paycheque to paycheque, young debtors are the most likely to use payday loans. One third of millennials are raising a family often as a single parent. They're just surviving financially while attempting to repay debt on a low income and they've got no emergency funds to fall back on.

So what do millennials need to know about managing their finances? And if you're the parent or grandparent or friend of a millennial, what advice can you give them to help them deal with these challenging times? We've got the answers to those questions and more on today's edition of Debt Free in 30 so let's get started and meet my guest. Who are you, what do you do and what's the name of your new book?

Shamez Kassam: My name is Shamez Kassam, I am a financial advisor based out of Calgary and I have written a new book and I'm very excited about it and it's called Your Money's Worth, The Essential Guide to Financial Advice for Canadians.

Doug Hoyes: Excellent. Well thanks for being here Shamez. Before we get into the meet of our conversation today could you start by giving us a little bit about your background, how you got into the money management business?

Shamez Kassam: Sure. Well, I actually started out in my first career as an occupational therapist many, many years ago. And so, I got out of school and I repaid all my student loans eventually and I had some access cash to invest so I just started to learn on my own essentially. And this was in the late 90s so made a lot of money in the tech bubble and then I lost it just as fast if not faster. But the process of investing still intrigued me a lot so I decided to actually change careers and I went back, did my MBA and I did that in New York. And then I also completed the Certified Financial Analyst designation, CFA and I've had a very broad range of experience working with some of the largest institutional investors in the world and also for a number of years I've been working with individual Canadian investors.

Doug Hoyes: Excellent so let's start with a basic question and then we can delve into more detail and I want to focus today primarily on younger investors, millennials, people like 30 years old and younger.

So, we released our Joe Debtor study last month and we showed that millennials have a lot of challenges as I said in the introduction, they're more likely to have sporadic incomes, student loans and other challenges. So, I assume that, this is an obvious question, but I assume the first step before you even think about investing, is to eliminate debt, is that correct?

Shamez Kassam: Yes. That would be correct definitely. And I think you're absolutely right in the sense that millennials especially do have a lot of challenges today, debt loads are high, job security is not what it used to be, homes are expensive and the costs keep on rising. So, I think there's a lot of challenges there.

One of the reasons I wrote the book though was really because in my day-to-day working life, I came across so many investors young and old that I saw making the same types of mistakes and some of them were really big mistakes. And it did sadden me that a lot of those mistakes were entirely preventable with the right knowledge. And so this book essentially sums up everything I've learned over my career in the finance industry.

And myself I'm a huge proponent of investor education and financial literacy because I think the schools don’t do a great job of this. And it's not rocket science but I think it just has to be done in a simple way and that's what I've tried to do in this book. And so for young people the sooner they start to get educated the better.

Doug And I totally agree with you and I've read you book and it is a book that's certainly readable. It's not full of all sorts of technical jargon and everything so it's certainly approachable. But let me pick up on something you just said there then. So, you said that you wrote the book because there are a lot of mistakes you see people, including young people, making over and over again. I'm sure you see older people making mistakes as well. Give me an example or two of the kind of common obvious mistakes that we make that we shouldn’t be making.

Shamez Kassam: Sure. Well, the first one is not understanding what you're invested in and what your personal risk tolerance is. And I've seen a lot of people over the years that don’t really understand what the difference is between basic kinds of investments are. So, say for example I always tell my clients you've got three main buckets where you could put your money into as far as public investments go.

So, you've got a cash bucket, then you've got a fixed income or a bond bucket and then lastly you've got a stock or equity bucket. And each of those three asset classes has different risks and it's got different return profiles and it's really crucial just to understand the differences there and also how much risk you can tolerate and then make investment decisions appropriately after that. So, that's one mistake, not really understanding risk appropriately.

And then the second mistake, and I see a lot of younger people do this especially, and this is a bit outside of the investing area but it has to do with insurance. And I find a lot of younger people are just inadequately insured and it's largely because they have not thought about it. And the irony is that, for young people especially, life insurance and also disability insurance, is really more affordable because you are younger and presumably in better health. And so, younger people really need to be aware what is the risk if I get disabled or if I suddenly pass away, what is the impact on my family?

Doug Hoyes: And I've certainly dealt with lots of people over the years who had some event happen to them. They got disabled, they got injured, something happened and as a result they had to use credit to survive, that's how they got into a lot of debt, that's what caused a lot of their problems.

Is that really why you recommend having insurance even if you're young? You're less likely I guess to be - have some serious medical issue, although I guess injuries can happen to anyone at any age. Is that really what it's all about, having insurance at a young age? It's cheaper so you can get it, we don’t - we all think we're immortal, nothing's ever going to happen, but you've obviously seen people who have gotten into trouble that could have been largely mitigated by having insurance, is it as simple as that?

Shamez Kassam: You're exactly right on that. And life is unpredictable and the rates of disability are higher than we would think them to be. And it's just a matter really of mitigating the risk and so I think insurance is really important when it comes to risk management and so, one of the things that I like to do is just make sure that people have all the rooms in their financial house in order.

So, you've got the investment side but you've got also the insurance side, debt management and also making sure that you've got a will package. It's quite surprising how many people are actually walking around out there and they don’t have a will and they don’t have a power of attorney or a medical directive. And some of these people have kids too, so you've got to just make sure you check off all the boxes.

Doug Hoyes: Yeah and we certainly see that with millennials, about a third of them have a family or have a dependant that they're supporting so it's certainly something to know. Now I want to go back to what you talked about on the investment end. Now this isn’t an investment show, we talk about debt primarily, but a lot of people get into debt problems because they took on risky investments they borrowed to do it and that ended up causing some problems.

So, I got a question for you. So, back in show 125 my guest was my father-in-law, who is now 80 years old. He retired back when he was 48 years old. So, he's retired now longer then he worked. And they way he did it back then was by saving money and putting it in GICs. Now, of course, back then he was able to earn a lot in interest so he didn’t have to speculate on the stock market or do anything risky.

But that's impossible for someone today. You can't possibly earn enough in interest to ever hope to retire I don’t think. You can tell me if I'm wrong. So what can you tell us about interest rates and how they're set and what the implications of low interest rates are going forward?

Shamez Kassam: Sure. Well, right now interest rates are near all-time lows. Real estate is expensive; the stock market is not cheap either. And one of the things that people need to think about is we could be on the verge of a real long-term change in the direction of interest rates. And so, if you have bond portfolios or you have bond investments, you really need to be aware that the prices of bonds tend to vary inversely with interest rates. So, if interest rates do go up, then you might see a hit to your bond portfolios.

Doug Hoyes: So in your book you say that the Canadian economy is facing long-term structural challenges, I guess that's what you're referring to. So, what do you think that means for the Canadian economy going forward and more importantly how do you think that will impact our personal debt levels, which are at record highs right now?

Shamez Kassam: I think that you're just going to see continued slow growth in Canada, right? Because what we've seen is that the large commodity cycle, which is really driven by China, has been tapering off. And so Canada as a country, we are very much levered to changes in commodity demand. And that's one of the key reasons that we've slowed. And there's a new U.S. administration obviously so hopefully they can jump start the U.S. economy, which would be beneficial for us as well.

But I think we need to be prepared for a slow growth economy. And in that kind of economy you really have to manage your debt levels. And one of the things that I talk about is it's really important to live within your means or even below your means because you just never know what can happen with respect to a job loss or things like that.

Doug Hoyes: Well and that's a good point you raise on I think it's page 157 of your book for any of our listeners who are following along. You talk about couples that are carrying debt into retirement and the problems that causes. So, I'd like to know what the problems are with that and how do you actually explain to people what it actually means to live within their means or as you said live below their means. How do you explain that?

Shamez Kassam: Sure. Well, in retirement, you know, when you get there you ideally want to have no debt, right? Because that gives you flexibility essentially and I have seen for example couples, they - those who do not have the financial discipline, there are some people like that who then tend to kind of ring up home equity lines of credit and that kind of thing. And then before they know it if they're two or three years away from retirement and they still have, you know, a 50% debt-to-value on their home equity line of credit and no plan to actually pay it back, right?

And so, what's really important from a practical perspective is to be disciplined and to also budget. And I think if there's one tip I would give to your younger listeners it would be get into the habit as early as you can of budgeting. Because you would be surprised how few people actually do budget and then stick with it, right? Because it takes discipline and there's lots of great online resources to assist you with budgeting. But just do a budget and get into the habit of that.

Doug Hoyes: And I think that makes perfect sense. If you don’t know where your money is going, how do you know where your money is going and make adjustments to it? In your book you talk about the differences between an investment advisor and a financial advisor. They sound like the same thing to me but obviously you don't think so. What do you think the difference between those two terms is?

Shamez Kassam: Well, yeah that's a great question because I think in the media those two terms are sometimes used synonymously and while, you know, and advisor might call themselves either an investment advisor or a financial advisor, for me I prefer the term financial advisor because it's more holistic essentially.

And so, when you're out looking for an advisor, one of the things you want to make sure is that the person you decide to work with looks at more than just the investments. And one of the other things I talk about in the book is a concept called the advice wheel so this is a wheel essentially with different spokes on it. So, one of them is investments, one of them is insurance, one of them is cash flow planning, estate planning, all those different spokes. And that just goes back to the point that you want to make sure that all the rooms of your financial house are in order not just the investments.

Doug Hoyes: Got you. So, what particular advice then would you give to millennials? And you've already given us some practical advice, young talked about the need for budgeting, the need for managing your debt. Are there specific other things that you would suggest that a millennial in particular watch out for? And for people listening, if you're not a millennial well, this is still good advice because I'm sure everyone listening is either a millennial or the parent of a younger person or the grandparent or something. So, I think it's advice we can all listen to. What practical advice would you have for the younger people out there?

Shamez Kassam: Sure. Well, there's three things, one is get educated as fast as you can because nobody will ever care about your money more than you do. And so, that's really one of the main reasons that I wrote this book is because it was very much apparent, that while there's a lot of investing books out there, there was nothing that I came across which was relatively simple and that gave Canadians a road map on how the financial advice industry is set up and what to look for.

So, in my book I've kind of outlined that in a simple way. And I've paired that with a number of practical worksheets that you can use, one of them is a financial advisor interview questionnaire so if you're actually - they can help you can ask, there's a list of things you might want to inquire about. And I've also included a basic yet very important principles about investing, insurance and estate planning. These are things I think everybody must know and our schools don’t do a great job of it unfortunately. So, the first thing would be get educated and it's not rocket science believe me.

The second practical tip I would have is to start investing early and take advantage of the power of compound interest. So, the earlier you can start, the more time your investments will have to grow for you. And it's really, really important to start early and I can't emphasize that enough. And the third thing is just pay attention to your investment costs because the more money that you can keep in your pocket the more money you have working for you. And advice is important and it's valuable but you want to make sure that your costs are reasonable.

Doug Hoyes: Because otherwise that can - high fees can suck up a lot of your investment returns, so, very important to keep track of that. Well, that's excellent. That's a great way to end it with some real practical advice there and I think all three of those things you just said apply to millennials and anybody else. They're great pieces of advice. Again, the name of the book is Your Money's Worth, The Essential Guide to Financial Advice for Canadians. And the book is available on Amazon and is it also going to be available in bookstores?

Shamez Kassam: It's not going to be in bookstores, it's just going to be online at Chapters and Amazon.

Doug Hoyes: So, Chapters and Amazon, so what I'll do in the show notes is I will put links to the book on Amazon so people can find it. And I'll also put links to, you know, the other stuff we've talked about, you've got a Twitter account, we'll put that out there as well so that everyone can find you. And good luck with the book, I hope it goes really well for you.

Shamez Kassam: Thank you very much and thanks a lot for the great work you do on this podcast and thanks for having me on the show.

Doug Hoyes: Great to have you on, thanks very much, so, that was Shamez Kassam, now did I say your name right there?

Shamez Kassam: Yes you did, you bet.

Doug Hoyes: Excellent so Shamez Kassam who has written the book Your Money's Worth, The Essential Guide to Financial Advice for Canadians which goes through in four different parts, kind of walking you through what you need to know. So, it's a great introduction for somebody just starting out but also a good refresher for people who have more knowledge. As I said I will put links over in the show notes over at hoyes.com that’s h-o-y-e-s-dot-com with links to the book and everything else we talked about.

That's our show today, thanks for listening. Until next week I'm Doug Hoyes. That was Debt Free in 30.