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A bite sized discussion on timely financial news and investment topics, to help you maximize your net worth and wealth for the next generation with Justin Dyer and Mena Hanna of AWM Capital.
Justin Dyer: Hey everyone.
Welcome back to another
episode of A WM Insights.
I'm your host, Justin Dyer, chief
Investment Officer here at a WM,
alongside Mina Hana, portfolio manager.
And we're gonna jump right in to today's
topic, which is the thrilling enthralling.
Mena Hanna: uh,
Justin Dyer: topic of interest rates.
And I, I say that somewhat jokingly.
We are gonna make this very interesting
'cause it's actually incredibly
important and it really is interesting,
especially for US finance nerds.
Um, and the simple way to think about
this is like, it's the lifeblood of
financial markets, interest rates.
Why are we even talking about this?
Well, if, uh, you've been, if you
haven't been living under Iraq, you
probably have seen some headlines
around the Fed meeting and, um.
Uh, even pressure from the president
to, to lower interest rates.
It looks like we are finally going to
get some decreases in interest rates
at the next meeting, uh, that the Fed
holds in the not too distant future here.
And, uh, and it's a kind of turning of
a page or, or a new chapter where we've,
we went from increasing interest rates
to really stabilized interest rates for.
Quite a few years, and now
we're gonna, we're gonna see an
easing cycle start, as they say.
Um, a simple kind of analogy here
is, uh, is interest rates really?
Control the speed of play.
So just like the speed of play
changes when the clock ticks down
in a game, interest rates kind of
affect how, how fast money can move
throughout the financial markets.
Um, and so we're gonna kind
of get into some impacts.
Why?
What do you need to know and,
and, uh, address a common question
when it comes to interest rates.
So, Mina, take it away.
Mena Hanna: Yeah, interest rates.
All right.
Where, where do I start?
Um, over the last few years, we've
actually had a pretty interesting
swing with interest rates.
During the pandemic, you saw the Federal
reserve cut interest rates to zero.
Interest rates were held pretty much
close to zero until 2022 when they
were raised because of inflation.
Um, when interest rates
actually started going up, you
saw the stock market decline.
Um, now there's a lot of different
reasons as to why, but that dynamic
actually is usually, typically a
little bit of what you see if interest
rates are rising, if we're in a
rising interest rate environment.
Stocks tend to perform a little bit worse.
Currently we're in a falling interest
rate environment and that usually
leads to stocks and equities doing
a little bit better because of the
dynamic you were talking about.
Speed of play gets a little faster,
money is moving a little bit more
throughout the entire system, so
people are just making more money.
Um, so.
As inflation kind of settles
down as employment also weakens.
Those are reasons for the Federal
Reserve to drop interest rates.
We're, we're seeing pretty much a
hundred percent chance of a drop at
the next meeting in September and.
Justin Dyer: And
Mena Hanna: When that happens
with a healthy market, a healthy
economy, that's usually a good
sign for stocks and equities now.
Yeah, it's, there's no
guarantees obviously.
Um, we, we've gone through a very,
very interesting last few years,
but that's typically what happens.
The analogy that I like to, to use,
to think about interest rates is when
interest rates are more favorable.
It's essentially like a team salary cap.
Salary cap goes up, the team
has more money to spend.
Players make more money.
Everyone's essentially happy, maybe except
the team owners who, uh, who don't want it
Justin Dyer: to.
Hopefully they're
Mena Hanna: Yeah.
Hopefully they're winning and, and
the team owners could be happy.
I think what, what they don't
want and what the Federal
Reserve, in this case, the Federal
Reserve is like team ownership.
They don't want it to
get outta hand where.
Way too much money is out there and you're
getting crazy inflation in salaries or in
dollars, and everyone is essentially hurt.
So they want to keep, they
want to keep things reasonable.
They wanna keep things in check,
but ideally they do want, um, want
to stimulate the economy and make
sure that there are jobs, there's
economic growth, and everyone,
everyone wins in that scenario.
Justin Dyer: And, and inflation
is under control, right?
There's a, so a little bit of the inside,
not inside baseball, but kind of, uh,
the, the wonkish side of this, the nerdy
side of this is the Fed is controlling
two aspects of the economy, inflation.
And employment, that
that is their mandate.
They look at those two data
points in a variety of ways and
make sure that those are healthy.
Sometimes they contradict each other.
Uh, inflation is ticking up a little bit,
but the jobs picture's getting worse.
And so that the job side is kind of
dominating the narrative or the broader,
uh, the broader economic picture.
Drawn from what's going on in the labor
force is, is dominating where they're,
they're putting time and attention.
Like you use the words typical and how
markets react and 100% you're correct.
It's also one of those things I want our,
our listeners to, to take away is like
typical is a strong word here, right?
Like, yes.
Okay.
If, if the, if interest rates go down, the
cost of money is essentially going down.
And so there's more money speeds up.
The ga the, the, the pace of the game.
Uh.
There's also plenty of situations where
the economy is not doing very well, and
interest rates have to be cut, and markets
also decline, uh, and it takes some time
for certain things to digest through
the, the financial system, et cetera.
So, I mean, we talk about
it a ton on this podcast.
There's so many variables that go in.
There's no, it's really, really,
really dangerous to just pull.
Simple, black and white, um, conclusions.
And I, I, I, I, I just wanna underscore
that, that's my, my job here.
Mena Hanna: Definitely.
Um, this is, this is a question.
I've actually gone it three
times in the past week.
Interest rates are coming down.
Should I refinance my house?
What should I actually be doing
with some of the debt that I have?
Justin Dyer: Yeah, great question.
Uh, my answer, I, you'd
think I'm a lawyer.
Maybe it depends.
Uh, but what I mean by that is when,
when you can't just look at your
interest rate and say, okay, you
know, interest rates are going from
whatever, six and three quarters to six
and a half, or, you know, six, 6.25,
like yes, that's a starting point
and you do want to save money
and what your monthly payment
ends up being could be cheaper.
Than it is right now.
But guess what?
When you refinance or you have
other debt that you might wanna
consolidate, there's all sorts of
closing costs, et cetera, like fees
that just get piled on top of it.
And so yeah, you, you might be
paying a lower monthly payment or
financing payment, but if you look
at the entire cost of what your debt
load will be over the life of it.
There's a good chance it actually might
be still more expensive than it would
be otherwise 'cause of all the other
fees that get tack gets tacked on.
So, you know, there's general rules
of thumb, but very, very specific to
each and every client circumstance or
any under any individual circumstance.
Great question to ask, but you can't just
blindly do it, be like, oh, my, my monthly
payment's going from $4,000 to $3,500.
I should do it.
Well, yeah, if.
You're solely concerned about cash
flow from a month to month basis.
Like yeah, maybe that is the priority,
but if you're thinking about just, and
hopefully at all, all the listeners
here, like are able to manage cash flow,
so you're thinking about total cost.
There's a very good chance refinancing
with a small interest rate decline
is actually more expensive 'cause all
the fees that are involved with it.
So you know, like anything, it's nuanced.
Right?
That's why I said
Mena Hanna: depends.
Yeah, it's definitely something to walk
through with your advisor and fact try to
factor in all of these different pieces
of the puzzle and make sure that you are
making holistically the right decision.
Justin Dyer: Yeah.
Mena Hanna: Alright,
Justin Dyer: So hopefully we made
interest rates somewhat interesting
and in all honesty, on all or all
seriousness, it is, it's an incredibly
important, um, aspect of financial
markets topic, uh, of financial markets.
So if you do have any questions,
definitely reach out to us.
Mina's gonna give, give his phone
number again for text messages.
Um, but yes, uh, we'd
love, we love the feedback.
Throw us ideas.
Send us
Mena Hanna: questions.
Yeah, my number's 6 2 6 8 6 2 0 3 5 5.
Justin Dyer: Cool.
All right.
We, we wrapped up a short episode today.
Tried to make this, uh,
digestible, like I've said.
Um, give us your feedback and until
next time, own your wealth, make
an impact, and always be a pro.