4 Strategies When Interest Rates Won�t Drop

Cold Open: Waiting For Interest Rates To Drop

[0:00] DAREN BLONSKI CFP®: Wait, here comes another analogy.

[0:02] DANO WEIR: It's not an analogy this time. What is it? Grin, it's a story. Okay, story. And you might have been there because it's September 1999.

[0:13] DAREN BLONSKI CFP®: September 1999.

[0:14] DANO WEIR: We're in the Casa Grande Gym in Petaluma, California.

[0:19] DAREN BLONSKI CFP®: I think I graduated by then. No, you were a junior. In 1999, I graduated in 1999, man. No. See, it had to be 98.

[0:29] DANO WEIR: You graduated in 99?

[0:31] DAREN BLONSKI CFP®: Yeah. Okay. Yeah.

[0:34] DANO WEIR: It's September 1998.

[0:37] DAREN BLONSKI CFP®: I wasn't there.

[0:38] DANO WEIR: Okay. No, it is because it was my freshman year. It would have been your senior year.

[0:40] DAREN BLONSKI CFP®: Yeah.

[0:41] DANO WEIR: It's September 1998. It's the Casa Grande Gym in Petaluma, California. I'm a freshman. You're a senior, so you're definitely at the back-to-school dance. And all of a sudden, this song comes on. Intergalactic, planetary, planetary, Intergalactic, Intergalactic. The Beastie Boys, Intergalactic. I'm sure you remember this song.

[1:06] DAREN BLONSKI CFP®: And everybody starts talking, like, oh.

[1:08] DANO WEIR: The DJ, he went to the warehouse. He went to the warehouse and he got this single the day that it came out. And all the kids are like, what are you even talking about? But that's how he had the song. It was that new. And there's a part in that song where they go, Beastie Boys are going to let the beat drop. Remember that part?

[1:27] DAREN BLONSKI CFP®: Sure. I was probably the dork in the back of the room. I can't see what is going on.

[1:36] DANO WEIR: That is what we're waiting for with interest rates. We just are at the part. Yeah. We're going to let the rate.

[1:47] DAREN BLONSKI CFP®: Powell?

Welcome To It's All Money

[1:48] DANO WEIR: Anybody? Financial confidence for your hip pocket.

[1:55] DAREN BLONSKI CFP®: Money is really just energy.

[1:56] DANO WEIR: Make sure you're checking out It's All Money. We're talking about interest rates, persistent interest rates today. Daren's not buying my Beastie Boys story. I thought it was funny. So I use it all the time. I use rap jokes all the time at this company.

[2:15] DAREN BLONSKI CFP®: You have a memory for those things that I have the worst memory for.

[2:21] DANO WEIR: Every time we talk about federal regulators, I'm like, regulators! Mound up. We have four strategies.

[2:30] DAREN BLONSKI CFP®: What did you get from...

[2:32] DANO WEIR: Talk show hosts used to be on a radio station talking about music that's right and i would like to turn on the radio once every six months that's where such a unique combination interest rates they're not coming down so this week we are talking about four strategies when interest rates won't drop. My name is Dan O'Weir. I'm clearly a pop culture historian and also the marketing director for the firm. I like to have a little bit of fun. We try to make this fun. And I'm joined by our founder of Sonoma Wealth, one of the founders, Daren Blonski, CFP AIF. Daren, we're in year three of rates being basically two to as much as four X in these three years compared to what they were the prior three years. Just this month, June 2025, the Fed chair, Jerome Powell, said, for the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance, meaning he's not going to cut anything anytime soon. Some of his staff kind of walked out and said, well, maybe possibly we might consider a cut. But there are a lot of people who are sitting around waiting for a cut. And today's episode is about one. What even is the Fed funds rate? What are interest rates? And two, what are some strategies, if this is going to be the norm, to work your way through a high interest rate environment?

[3:57] DAREN BLONSKI CFP®: You know, it's INTERESTing. Yesterday morning, I got up and my son had left the TV on all night. And I was like, oh, TV was on all night. But it was, they were, it was, Congress was interviewing Chair Powell. And I looked at Chair Powell. I'm like, man, that guy looks. Be like, usually he looks really buttoned up and his hair was kind of a little puffier. He looked really exhausted and tired.

[4:16] DANO WEIR: He's dealing with Trump.

[4:17] DAREN BLONSKI CFP®: I'm not sure if I was projecting how I felt onto him, but I took a picture of the TV and I sent it to Chris, my partner and said, man, your business partner, business partner, chair pal looks beat. And that's exactly what he said. He's like, yeah, he's been doing it with Trump because Trump has been absolutely just. Beating this guy up. And there's a lot of people to say that Chair Powell is very much opposed to a lot of the Trump policies as are many of the Fed people there who have been proven to vote very democratic, not Republican. And so there's a lot of angst and discussions about, are they really being apolitical? They really being fair. That's a debated content or a debated topic amongst the circle of people are Fed watchers and advisors and that kind of thing. A lot of their countries have lowered the rates now, but Chair Powell has not. In fairness, Chair Powell lowered the rates 50 basis points right before the election, and then now won't lower them. So people are like, why'd you lower them then but not now? And he's like, what he keeps saying is that because of tariffs, they're expecting later in the year a big influx of inflation to come through. It's very debatable, right, as to whether or not that's going to happen or not. But that is correct. We're not expecting rates to come down. Although what the Fed does is Chair Powell comes out and he says what he says. And then if it doesn't land well, they walk it back by having other Fed presidents come out and talk. So the very next day, a couple Fed presidents came out and said, well, we could see rate reductions by July. So there is something on the horizon. They're hinting at something on the horizon. It very much depends on what happens with all the other pieces in the economy. The Iran and Israel issue that was likely to spike oil and gas prices, that could be very well enough to push us into a recession because the cost of oil carries through the economy everywhere. We've seen some really ugly home data prices come out. Saying all that, the Fed is generally reactionary. They're late to the game most of the time.

What Even Are “Interest Rates”?

[6:31] DANO WEIR: So this episode is chapterized. If you want to jump right to the strategies, the four strategies, go for it. The chapters are in the show notes on YouTube. You can just click on them. But our goal is thorough education. We want you to understand this. So before we jump into the strategies, could you please give some education, Daren, on what is the Fed funds rate? Because I think the casual person and myself included before I worked here just thought like there's this. Federal entity and they set the mortgage rate. And then he just decides that mortgages are 7%. And that is not the case.

[7:10] DAREN BLONSKI CFP®: No, the Fed fund rate is they set the rate for which the ultimately the beginning of the supply chain that money can be loaned for. And then if you think about the Fed funds rate, like here's what we're willing to loan money for, then all the other rates throughout the economy gets set off that, right? And so if they lower, if they... Lower it then all the rates across the economy go down if they raise it they all go up so they kind of control it what we call the short end of the rates and then the economy controls everything else the Fed will move that rate up and down if they want to stimulate the economy they typically reduce it because then capital is cheaper you can build things borrow money for less you can buy homes. If they raise rates, it slows the economy. Harder to purchase homes. It's harder to get loans that constrains the environment for lending.

[8:07] DANO WEIR: So really simple example is you as a consumer go and get your mortgage from, let's say you chose to, not saying you should, let's say you chose to go get your mortgage from a huge bank, one of the big four. That bank is getting their money from the Fed? Maybe. That's like maybe.

[8:27] DAREN BLONSKI CFP®: Maybe.

[8:28] DANO WEIR: But like, so it's like the rate that the, that the Fed loans it to the bank. So that's what the bank had to pay for it. And then downstream, it ends up to you at more because they marked it up.

[8:37] DAREN BLONSKI CFP®: Obviously that's not exactly accurate, but for sake of the conversation, I think it makes sense that more or less it's what the, the, the it's, it's the wholesale number. Yeah. Right. And there's a lot more complexity to that, but there's a wholesale number. And then every institution then adds a little bit on that. Right. Right.

[8:55] DANO WEIR: And then that's how they make money.

[8:56] DAREN BLONSKI CFP®: That's right.

[8:56] DANO WEIR: Because the Fed doesn't want to actually deal with directly interfacing with consumers. That's right. Okay.

[9:01] DAREN BLONSKI CFP®: That's right.

[9:02] DANO WEIR: So we can see we've got up on the screen here just a look at the Fed funds rate over the last 20 years. Obviously, after a great financial crisis, you see it just hit the absolute floor. And then it starts to walk back up. And then COVID hits and hits the floor again. So if you're getting a mortgage. As of this particular slide that we're looking at, this was pulled on May 1st of this year. So it's at a 4.33 Fed funds rate. It was projected over the next two years, possibly to go down to 3.4. But projections are just that. So who knows actually what will end up being the case.

[9:45] DAREN BLONSKI CFP®: Just on that note, and you can see from actually go back real quick on that chart. Notice how it tends to fall off a cliff. Goes up, falls off a cliff, goes up, falls off a cliff. That's demonstrating the reactionary nature of the Fed, where the Fed looks at this data, and they look at, like, the PC core inflation rate, and they're like, oh, shoot, man, inflation's high. We better raise rates. And that's what happened in 2022, and they just shoot it right up.

[10:15] DANO WEIR: Like, they're all just sitting around like, oh, man. Jerome, did you see this? We got to drop it. Yeah. Thumbs up. Cool.

[10:27] DAREN BLONSKI CFP®: I don't think it's, it's probably more sophisticated than that, but it's not much different. You know, they use fancier words, but that's pretty much how it goes. And the Fed tries to create all this research and do all this stuff. But like one of the pushbacks against the Fed right now is that the Fed has two primary mandates, right? And that's price stability, right? And full employment. Those are the two mission of the Fed. So you have price stability. So the prices of goods in the economy relatively stay expected. And then, so you have the price stability as the first mission of the Fed. And then the second is full employment, keeping enough people employed throughout the world. That's their two missions. In recent years, the Fed has implemented other policies in where... They have a dual mandate, those two things, but they've had other things like the more controversial sociological topics that they've implemented into their systems and what they're doing.

[11:27] DANO WEIR: Like wealth inequality.

[11:29] DAREN BLONSKI CFP®: Wealth inequality, things like that. And the pushback is like, well, shoot, like, yeah, that's important. And that's creating such a complex model that... It creates issues. So one lens, when you look at what happened during COVID, where we had a lot of protests, you have the protests that were just started over the ICE raids. There's the on the surface what they were, which is about racial tensions and about immigration policy. That's the surface level thing. But from an economist standpoint, we look at it from a socioeconomic status point. And we'll show in a few slides, like credit card debt going through the roof in recent. So when you see these parts of the population who are under pressure financially, you tend to see those protests start for whatever sociological reason, right? So one thought of that is that the protests are really about fairness in economics. And then the sociological concept is just the stated reason. But it's not necessarily the reason, right? Because the reality, and we know this economically, that if people's bellies are Fed and people are full and people have generally what they need in life, they don't protest regardless. It's not worth it to them. That's really what you look at the end of the day, social security, if you go back to our social security episode and why social security probably will never go away is because it's meant to keep people at the poverty line. And if the poverty line is no longer there, then people start protesting. And they might manifest some other thing like immigration, racial equality, whatever it is, but at the end of the day, it's an economic conversation. And if you look at those two periods of time in recent history where we've had social protests happen, magically they happened around points in time of extreme social injustice around economics. And then that was just part of the driving force, and then there was a stated reason. So the Fed is always trying to say, well, we got to keep everybody popular, everyone in the populace more or less happy. You're going to see that again with AI coming on board. You're already starting to see that. This is a whole nother topic we should probably talk about. But what you're seeing is the unemployment numbers go up for the recent graduates because all the entry level positions are being handed over to AI tools now. And that will happen more and more. So entry level jobs are going away. Mark my words, then you're going to start seeing some other social protest. It will be coming from that group of people, which are the recent grads saying, we can't get jobs there. You know, I paid all this money to be a software engineer, a lawyer, whatever. And there's no jobs out there because the AI does it now. And you're seeing that number creep up and creep up. So you'll see some type of social protest related to that, which will then bring in what we call UBI, universal basic income, which will be. Social security on steroids. We will have to, in the next three to five years, have UBI, universal basic income, because AI is going to take so many jobs, probably at least up to a third of the jobs out there. And then what do people do? It's going to become a problem.

[14:46] DANO WEIR: Let's look a little bit downstream from the Fed funds rate.

[14:49] DAREN BLONSKI CFP®: Tell me how- I totally took us down another route, but it's an INTERESTing topic.

[14:53] DANO WEIR: No, I totally get it. I get it. So how does the Fed funds rate impact the 10-year treasury?

[15:00] DAREN BLONSKI CFP®: Well, it's, it's, so the 10 year treasury is set. So the 10 year is what the Fed is willing to pay you in interest if you take their debt for 10 years, right? So they're setting the short end of the curve. With things like the Fed funds rate, the market's setting the 10-year rate. But a lot of institutions base their interest rate pricing off the 10-year. So it's a pretty important number to watch.

[15:31] DANO WEIR: So the Fed funds rate is like the wholesale price. The 10-year treasury is sort of the retail price that then impacts a lot of other retail products.

[15:40] DAREN BLONSKI CFP®: I'm going to make a really simple example, but think of it this way. The Fed does an auction for the treasuries. And when that auction goes out, the 10-year rate is what people or the market and its institutions, individuals are willing to pay to hold debt of the federal government for 10 years.

[16:00] DANO WEIR: And then people buy that and then that goes downstream to a consumer.

[16:04] DAREN BLONSKI CFP®: It could or it could be held by the institution. Lots of different. Gotcha.

#1 – Get Your Debt Under Control

[16:08] DANO WEIR: Okay. So we've set up what the environment's like. We've established that we are in a high interest rate environment, has been so for the last three years. Let's go on to our next graph there. So what are the four strategies to operate and to do your best in a high interest rate environment? The first thing is to get your debt under control. So we're looking at a graph right now. These are credit card interest rates. Pulled from the Board Of Governors of the Federal Reserve System via the FRED, the St. Louis FRED. And you can see it's very clear. We're hanging out in the 15s, 16s, down to the 12s in the 2000s, all the way down, hanging out in the 12s all the way through the early 2000s. And starting in 2022, we just skyrocket from 15% credit card interest rates all the way up to 22 in some cases. So. If you are living on credit cards, if you are living on consumer debt, that is a crushing component to your budget. It's just money that's just going, you're bringing it in from your job and it's going out through the door just to interest. Credit card debt nationally is at an all-time high, $18 trillion. Auto loans, same deal. If you've got your car on loan, what a similar shape. You see auto loans in 2022, they're going up, they're going up. The car loans are hanging out in the fours and fives all the way through the 2010s. And magically in 2022, now they're double. So again, if you've got your car on a loan, if you've got your cars on a note, if you're rolling negative equity, you're doing all kinds of stuff like that, it's just crushing financially. So car loan delinquencies, by the way, are at an all-time high. So the first strategy is to get your debt under control. And here at Sonoma Wealth Advisors, we are a Dave Ramsey SmartVestor Pro, and he has seven baby steps, which are well-known by people who've heard of him. And they're super simple. They're super boring. You are coming to a trainer saying, I want to get fit. I want that six-pack. Give me the injection. And we're saying diet and exercise. Boring old diet and exercise. In a high interest rate environment, you are not going to succeed taking a bunch of risks, taking a bunch of debt, and trying to play the interest rate game. Dave's 7 Baby Steps is something that we have lived ourselves and is something you have taught and can help people get out from under crushing debt.

[18:55] DAREN BLONSKI CFP®: Yeah, so I want to caveat this conversation because I know how hard it is right now for so many families. Like you literally can be working two jobs right now in California and not be surviving because there isn't a lot of livable wage. So I think, yes, it's easy to say this. I think what happened through COVID is we also became. Comfortable with overspending because the government just basically started this helicopter money era where money just kept coming to people, right? So it's very hard. And we got really comfortable living in debt as a society, with interest rates going up, it made it even harder with inflation going up because the inflation, the interest rates had to go up to combat inflation. It made it even harder to live, right? So it's really easy to say, hey, get rid of your debt. But the challenge of that is very difficult for a lot of people. And at the end of the day, getting rid of debt is about slowing the velocity of money, how fast your dollars come in and how fast they go out. That's the only way you can eliminate it. That's very difficult to do in an era of one-click world where you literally can one-click and buy things like that. What Secretary Pulte did, Today, in our previous episode, we talked about how crypto can now be looked at as an asset to buy a home. In a way, is a relief to a younger generation who's been largely marginalized out of the ability to own homes, right? Because it's so expensive with where interest rates are today. And in some ways, it's a hat tip allowing the younger generation to use their crypto assets as a way to qualify for mortgages. But it's also a trap. And it's also a trap because you might be then tempted to purchase a home you cannot afford and crypto is extremely volatile. So you want to be very, very careful. But generally saying, at the end of the day, credit cards, auto loans, baby steps, all of that is to help you slow and control the velocity of money in your wallet. How fast the dollars come in and how fast they go out. Those who can control that velocity will do better in a high interest rate environment because everything is more expensive.

[21:18] DANO WEIR: One thing that people will do if they're trying to get their hands, trying to get a handle on their debt, and this is not everybody, you know, this is one thing that we do do on our show is we speak to a large audience. And some shows only speak to, hey, I only speak to high net worth clients, or I only speak to this type of person. We like to educate across the spectrum. And so, in fact, a lot of high net worth individuals will resonate with what we're saying right now because they were at one time in debt, right? And they worked their way out. So I hope that you feel that from this part. But it is a little bit about just starting to get really honest with yourself and starting to really look at, you know, what do I really need and what do I really have? And, you know, if you have to make cuts, make cuts. But one thing that people consider makes a lot of sense is, hey, I've got all this debt. Consumer debt, whatever, should I roll it into debt consolidation and then get an overall lower rate? What would the danger of debt consolidation be?

[22:20] DAREN BLONSKI CFP®: Well, the danger of debt consolidation is you're effectively removing the symptom, but you still have the core issue. And the core issue is your velocity of money is too fast. And you have too much money coming in and out more than what you're actually making. And that creates the debt in the begin with. When you consolidate debt, yeah, it makes it better. But what it does is it relieves some of the pain that might tempt you to continue the bad behavior. And that's the issue with the debt consolidation process. It's not necessarily a bad thing. It's just that it can give you a little bit of relief.

#2 – Be Honest About Real Estate

[22:57] DANO WEIR: Yeah, and it can trick you into, oh, I did something. Yeah. You know, which is just what you're saying. If you're still way living beyond your means, then it's just going to happen all over again. So, we won't go too deep on the baby steps here. If you want to learn more about it, or if you want us to connect you with a good resource, just go to sonomawealth.com and submit us an email there. We can get you connected. Let's move on to the second strategy. Speaking of being honest, this is what I'm calling be honest about your real estate. So, again, looking at rates, we've got on the screen here 30-year fixed rate mortgages in the United States. And so if you want to feel good, good about right now and rates right now, this chart goes all the way back to pre-1975. And in particular, in the 80s, you can see rates up at 15, 16, 17, 18%. And so we can look down to 2025 and go, oh, not that bad. Hey, that's way lower than there on the chart. But Brandon, if we looked at the next graph, let's, this is where, you know, any graph can be sized to be deceiving. Looking at the last 10 years, you can just see just as with the credit card debt, just as with the auto loan rates, you can just see mortgage rates go from, you know, in the threes or even the twos in 2021, 2022. And then these last three years, just double, triple, quadruple. So being honest with yourself about your real estate and say, am I over my skis with my primary residence, with my rental? And you can know that by doing the one thing that you do not want to do, and that is a budget. You don't want to sit down with a pen and a paper and do a budget. If you sit down with a pen and a paper and do a budget, you are ahead of 64% of America who don't do that. People do budgets, but they have it in their head. They don't write them down. And so saying to yourself, hey, you know what? I got in this property. I got in with the property at a high rate thinking it might come down. It hasn't come down. It's crushing me. It's not working. I'm not meeting X, Y, and Z. And being honest and say, is it time to get out of this property? Can I still make it on this? Do I need to make compromises elsewhere in my life? That's one of the things we talk about here at the company, at Sonoma Wealth, is understanding the situation and not letting the situation maybe affect you emotionally.

[25:36] DAREN BLONSKI CFP®: Well, the other thing I'll say about budgets is it takes 90 days to even do a budget. So if you think about it, your first 30 days, you're going to fail. Your next 30 days, you're going to fail. And your third 30 days, you're going to fail. And you might start getting it right. And most people don't have the stick-to-itiveness. To get through 90 days and fail, fail, fail, fail, fail. It's like what I always tell my kids, success is on the other end of failure. And if you want to be more successful, fail more often and keep doing the budget and keep failing at it. You're not going to do it perfect and eventually it will get better. And that's the trick to budgeting. There's no perfect way of budgeting. Being honest about real estate, it's really, really tough in California because the cost of living is very expensive and it's becoming true all over the place now because We've exported our lifestyle, I guess, out of California and our cost of housing because you go out of California, it ain't that much cheaper anymore. We do this analysis for people all the time, like what's the benefit of moving out of California, blah, blah, blah. And it's shockingly not that beneficial in many cases anymore. I always tell people to think about a house versus a home. Is this a house you're buying or a home? A home is a forever property. It's something you'll have through the generations. You'll live in there at least 10, 20, 30 years. That's a home. Most people don't stay that long in homes anymore. Most people are actually buying a house when they think they're buying a home. A house is something that it's all about the buy, when you buy, that matters. Because of the taxation changes, buying a house doesn't make a ton of sense all the time anymore. You need to be really careful about buying, but we've been brainwashing to thinking buy, buy, buy, buy, buy. And that's just not the case anymore. So getting honest about what is the true impact, why am I buying this, what is the likelihood I'll stay in this home, all those type of things is super, super important. For that being honest, finding a mortgage pro you it's trustworthy, right? Like we have lots of clients we send out to different mortgage pros to help, but you want someone that all mortgage pros are incentivized to close the deal. Right. And that becomes a little problematic, but it's also your benefit because they're going to do whatever they can to get that deal closed for you. But having someone you can trust is super important. When you're going through that process. Yeah.

[27:48] DANO WEIR: And that's someone to talk to. So. If you've not done this, if you don't have this person in your life, they're out there. I used to work in that business. Find a mortgage pro who is someone that you connect with, who is someone who you feel like is going to fight for you. And if you're in a property currently, sit down with them. If they didn't do your loan, just sit down with them and say, hey, I'd like you to look at this. Here's my situation. Here are my numbers. Is there anything I can do? And I can't say specifically, but... But when I worked in that part of the business, there are these double backflips that they do with rates and points and all kinds of things that I have been surprised before with some of the stuff that they've been able to pull off. So I'm not telling you you should do that, but I'm saying it exists and it might be somewhere to start. And I'll just say this. So again, we'd like to speak to everybody across the spectrum if we can. If you're a renter right now, if you're feeling like it's impossible, impossible, you will never. Buy a house. I'm not going to tell you that you can, but if you really want to, this is what I would suggest doing. Do that exact same thing. Find a mortgage pro and a realtor, sit with them in person, tell them you're going to be the best client they've ever had. You're going to get back to them on time. You want to buy. And you are willing to do whatever it takes and whatever they say to try to get in a property. Start there. Have a job. You've got to have a job and work hard at your job and be pursuing things at your job to try to get the number up. And then listen to what those pros have to say because it's shocking. You don't believe it, but I swear there are programs out there for down payment assistance. There are all kinds of things that can assist you. In trying to get into a property, if that's something that you really want to do, and then, you know, be willing to compromise on a few things. We all want to have that cash in the bank where you just go in and write the check and it's your, quote, dream home. If you're willing to change the location, if you're willing to compromise on a number of things, I still think it's possible. I still think it's very possible for people to buy homes. And it's just a lot harder than it should be. It shouldn't be this hard. I totally agree. It's unfair. I'm just sharing what I've experienced myself going through it. And just because it's unfair doesn't mean you can't do it.

[30:16] DAREN BLONSKI CFP®: Yeah, and I don't necessarily think anymore buying is always a good decision. Right. And so I would add, yeah, have a good mortgage person, have a good real estate agent, but have a good financial planner that has no incentive to sell you anything other than to run the numbers for you and say, does this make sense for me? Because that story is very different a lot of times than what you're going to get from someone who's incentivized to sell you a mortgage and someone who's incentivized to sell you a property. And given the way the markets are, there is a lot of real estate agents out there that are really struggling right now and mortgage people. The industry is in. Wreckage zone right now. We haven't had a recession in a lot of the other parts of the economy, but we're certainly having one in the mortgage business. Yeah, for sure. Real estate. For sure.

#3 – Maximizing Cash

[31:04] DANO WEIR: Well, let's move on to that financial planning planner and assets. So the third strategy, maximizing your cash. Okay. So we've talked about the downsides and we've talked about the challenges of a high interest rate environment. There are upsides as well, because I don't know if you've looked at a savings rate, late labor, high yield savings account. It's a lot higher than it used to be. So what are some of the benefits of maximizing cash right now and how could people do it? Third strategy.

[31:29] DAREN BLONSKI CFP®: Yeah, so this is really INTERESTing because the fact that interest rates are high, it really helps people who have cash. And we go back to the whole income equalization process, right?

[31:38] DANO WEIR: Inequality.

[31:39] DAREN BLONSKI CFP®: Inequality, right? Because people who don't have cash are really getting hammered by high interest rates. People who have cash are like, I'm making a ton of money in my interest account. Right? So they're excited. So you have like a, so you have like, if you look at what a bank is, a bank's going to offer a checking account, it's going to be next to no interest. If any, you have a savings and a high yield savings, that's going to give you a little bit more interest rates. Then you've got CDs in money markets. They're all used at different points in the structure. For example, when rates are rising, you want to be in money markets because they're going to be floating higher with rising interest rates. When interest rates are going down, you're going to want to be using CDs to lock it in at lower rates. As it goes down, you'll hold onto those rates longer. When we look at this in helping client, we do a lot of corporate treasury management for clients. So corporations, institutions that have big cash positions that they need managed. We'll look at the CD rates, we'll look at the money market rates, and then we're moving the money between treasuries and CDs and money markets all based upon what's going on in the interest rate structure. So there's a lot to be done nowadays in the cash management world. It used to be they weren't paying anything, and here it didn't really matter.

[32:52] DANO WEIR: Well, let's look at the screen. That's what we have up here. These are money market yields, and the data doesn't go back very far. But you can see in May 2021, this is not a thing. Right. And then right at that part, spring, summer 22, boom, up. And so hanging out in the fives. Right, and now back down a little bit to fours. So these are a part of a portfolio, maybe when they weren't before. And as we're talking about, hey, this is a place where you could put some money. But not everything, right? Depending on the person, it's all specific to the person. But what are some scenarios where people would have things in CDs in money markets versus, say, a Roth or other account types?

[33:44] DAREN BLONSKI CFP®: Well, obviously, if you need the money in the near future.

[33:47] DANO WEIR: The liquidity.

[33:48] DAREN BLONSKI CFP®: Well, you're going to have liquidity in money markets. Cds are liquid-ish, depending on the duration and if you need the money. But typically, money you're going to need in the near future or you're fearful of losing for some reason. Belongs in something like a money market or CD. Here's the trick though, with money markets and CDs, you're making a rate of return, but is it counterbalancing cost of inflation, right? And that's the trick, right? So you don't want to have so much money in conservative investments that you're getting chewed up by inflation, right? Because the value of that dollar is going down. So you don't always want to be just stacked in a money market. Sometimes you want a portion, right so We typically say three to six months in savings, depending on your situation, maybe nine months in, we call lazy money, money market CDs, things like that. And then everything else should be invested in some type of the market.

#4 – What To Do In The Market

[34:41] DANO WEIR: Well, let's look at the rest of the market. This is our fourth strategy. What to do in the market in a high interest rate environment. And as you've mentioned a couple of times over the past couple episodes, AI. Darren, I asked Gemini, which is Google's AI. What the market does typically in a high interest rate environment. So this is what a robot told me. And now I'm going to test and see what the CFP thinks about the robot. Okay. So the robot said, high rates impact different investments differently. Don't panic. Adjust. Bonds. It says that there's an inverse relationship. When interest rates rise, existing bond prices tend to fall because newer bonds offer higher yields. Is that true?

[35:28] DAREN BLONSKI CFP®: That's true.

[35:30] DANO WEIR: So what should show in a high interest rate environment, we are what with bonds?

[35:37] DAREN BLONSKI CFP®: Well, it depends. Doing what? If it's a raising interest rate environment, that's very different. That's bonds will go down. Right. So if interest rates are going out, the best way to think about it is like a teeter-totter. If interest rates are going up, the bond prices are going down. If interest rates are going down, bond prices are going up.

[35:55] DANO WEIR: This is a good time to consider shorter duration bonds or bond funds. As they are less sensitive to interest rate fluctuations?

[36:02] DAREN BLONSKI CFP®: Well, think about that on a fulcrum, right? So if out on the end of the fulcrum, we have our long duration bonds. If interest rates are going down, bond prices going up, the ones on the ends are going to move more than the ones near the fulcrum that barely move. And so that's why they're saying just by the short duration.

[36:21] DANO WEIR: Okay. T-bills. What is a T-bill? I don't know what that is.

[36:27] DAREN BLONSKI CFP®: It's a treasury bill. It's a U. S. Government debt, basically.

[36:30] DANO WEIR: Okay, okay. Highest, okay, I've just not heard it called that. I guess I've heard it, but I didn't make the connection. These are very safe short-term options to earn competitive rates directly from the U. S. Government. So kind of the same, a treasury bill is different than a bond?

[36:45] DAREN BLONSKI CFP®: Well, your quote-unquote risk-free rate is the rate that you would buy government U. S. Debt from, right? And so bills and bonds are a little bit different, and that's a whole other show to go into, bit bottom line is if you're buying short-term t bills it's a shorter duration and that's why it's suggesting doing that than a long-term treasury bond do you agree with that maybe depends like i have to ask a lot of things what's inflation doing right if you're buying super short-term interest rate bonds and inflation's really high then you're technically not making any money okay.

[37:22] DANO WEIR: Stocks higher interest rates can be a headwind for growth stocks as future earnings are discounted more heavily in companies with high debt loads. Emphasize looking for companies with strong balance sheets, consistent earnings, and pricing power. Dividend-paying stocks can also become more attractive as they offer a current income stream. Now, I'm going to say that I think this is bupkis, because it seems like earnings don't even matter anymore in the stock market, and the honey badger is just going to do what the honey badger is going to do. What do you think?

[37:56] DAREN BLONSKI CFP®: Well, so this has actually not been true at all over the last few years, right? Because think about what our best performing stocks are, Magnificent 7, which are considered growth stocks. So that's Nvidia, Microsoft, Google, Amazon, Tesla. This is telling you, hey, in a high interest rate environment, it's a headwind for growth stocks, meaning it's going to be hard for growth stocks to do well. And if you didn't own growth stocks in the last three years, your portfolio is bismuth, right? That's all that's happened. So in this case, If you just went on to AI and built your portfolio with this, you suffered. And it is true that there's higher borrowing costs, like that would impact utilities. But this is not played out. That's also why, and dividend paying stocks have not done great the last few years. This is why. Some question whether or not this environment we're in is sustainable because it's not behaving like you would expect it to behave. And usually when you see stuff like that, it comes back into the mean.

[39:02] DANO WEIR: Long-term perspective. For long-term investors, market fluctuations are normal. Stick to your diversified asset allocation based on your risk tolerance and goals. Don't make drastic changes based on short-term. Rate movements. Is there anything else that you would say from a market perspective should be considered in a high interest rate environment?

[39:23] DAREN BLONSKI CFP®: The market's going to do what the market does, right? And you shouldn't be changing your portfolio around based upon what the market is doing. Because When we look at investing one, two, three, four, five years, your year-to-year portfolio performance is of less importance. What's most important is those longer periods of time. And when we have periods of time like we've had where growth stocks have outperformed everything else, that usually comes back in line and reverts to the mean. There's some questions as to whether or not that's going to continue because of the way the government's printing money right now. But the long-term perspective needs to be whatever your allocation is. Stick with it through whatever, right? Because typically over a period of time, things will rebalance out. And we're seeing a lot of people right now say, well, my portfolio is not coming up if they're in non-growth stocks. Let's say, well, yeah, but if you chase the growth stocks, you're likely to have a major downside. And so you need to be really careful. So what I tell people is don't chase portfolio performance. Chase your allocation and your principles of investing and stay to it in any environment.

Closing Thoughts

[40:30] DANO WEIR: So our four strategies, again, number one, get your debt under control. Number two, be honest with yourself about your real estate and what you want or think or might or think is going to happen, could happen. Three, look at instruments that are going to maximize your cash and you can benefit from high interest rates. And four, we gave some strategies for what to do with your portfolio if you're at that point in your life where you have a portfolio to be managed. So... The thing is, is that the rate could drop tomorrow. Good. It all could be completely different tomorrow. And that's the part that you don't know. But at least for today, as we move into year three here of persistently high rates, these are some things that you can do to make the best of the current situation and look towards perhaps the future. Thanks. Thank you so much. Sonomawealth.com if you want to check out our free wealth analysis. My name is Dano. This is Darren. And thank you so much for checking out our show. Thanks for watching and listening to It's All Money. We hope today's episode shared information to increase your financial confidence. Now is the time in the show for the voiceover with a bunch of words at the end. Listen close, though. You might find out something you didn't know. It's All Money is powered by Sonoma Wealth Advisors. Sonoma Wealth Advisors helps individuals and families in Northern California and across the country with. Building, managing, and sustaining wealth. Sonoma Wealth is a comprehensive, holistic finance solution, offering financial planning, asset management, tax planning, 401k solutions, and appropriate insurance. Take our free wealth analysis now at sonomawealth.com. If you haven't already, like and subscribe to It's All Money on YouTube, Spotify, and Apple Podcasts. It's All Money features human hosts, musicians, editors, video crew, and voiceover talent. Video production by Forze Media in Rohnert Park, California. Online at forzemedia.com. Music by Neon Beach, Sparkle Rising on Soundstripe. Voiceover by me, Dano. Thank you for listening to the very end. We appreciate diligent viewers and listeners. Fermata Advisors LLC is registered as an investment advisor with the SEC. And only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. This content was produced by Fermata Advisors, LLC, DBA Sonoma Wealth Advisors, DBA Fermata 401K, DBA Fermata Tax. The opinions expressed by Fermata Advisors, LLC on this show are their own. Information presented on this program is believed to be factual and up to date, but we do not guarantee its accuracy. And it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated are not guaranteed. Information Express does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Viewers and listeners are encouraged to seek advice from a qualified tax, legal or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.