Common Sense Financial Podcast Brian Skrobonja

In this episode on Certificates of Deposit (CDs) as investments, we talk about the nuanced decision-making involved in purchasing CDs and whether or not CDs are good investments, particularly in a rising interest rate environment, and we explain why interest rates are the only factor you need to consider.
Wealth creation isn't solely dependent on CD rates, and we need to consider the impact of inflation and interest rates to gain a comprehensive financial perspective. The episode also explores how government strategies to combat inflation by adjusting interest rates impact not only investors, but also shape the attractiveness of CDs as an investment option.
In a rising interest rate environment, buying CDs may seem like a good idea but it depends on your needs and goals. Wealth isn't created by buying a CD based on a rate. It's created by understanding why the rate may not be all that important. Banks look at what is known as the federal funds rate, also known as a benchmark rate. This is the rate banks charge one another to borrow money overnight that's needed to maintain reserve requirements. Upstream in the decision making process is the Federal Open Market Committee or FOMC, who meet throughout the year to discuss and set monetary policy. Within these policies, rates are set and typically linked to inflation. When those rates are set, banks may adjust rates on loans, deposits and certificates of deposit. But just like any business, banks will adjust rates to compete in their market as they seek to cover their costs and maintain a profit. CDs specifically are an attractive tool for banks, because unlike a deposit account, CDs actually lock up customers with a maturity date, which gives banks better control of their cash flow. The higher rates draw in customers seeking to maximize their returns. Rates on CDs matter, but not as much when you factor in inflation and interest rates. If inflation is at 7% and interest rates are at 5%, the net is 2%. The same is true if inflation is at 0% and interest rates are at 2%. You have to look at both numbers to get a full picture. When you consider the gridlock within the housing market and the amount of debt our government holds, it's hard to believe rates can remain elevated over the long term. The government is desperately trying to combat inflation by raising rates. These higher rates not only impact consumers, but they also impact the government. According to the Congressional Budget Office, or CBO, in June of 2023, they projected that annual net interest costs on the federal debt would total $663 billion in 2023 and almost double over the next decade. Interest payments would total around $71 trillion over the next 30 years, taking up to 35% of all federal revenue by 2053. These numbers are impacted by interest rates and with lower rates come lower interest payments, so the government has reasons to see rates lower than they currently are. The question is: Does it make sense to lock in CD rates while rates are high? It depends. If you have money sitting in a bank account that you don't need and the CD rate is offering a higher rate than your savings, then it might be a good option. A good idea is to compare CD rates to other options like fixed annuities and money markets since they share some similarities but also have a few key differences that could make one choice better for your situation. Certificates of Deposit are offered by banks as a savings account that offers a fixed interest rate over a specified period of time, ranging from one month up to five years. They carry penalties if funds are removed before maturity, and they're FDIC insured up to $250,000. Fixed Rate annuities are issued by insurance companies and are financial products that offer a fixed interest rate over a specified period of time. Early withdrawals can incur a penalty, and interest earnings are tax deferred until you start taking distributions. The guarantees are backed by the claims paying ability

In this episode, Brian Skrobonja explains what alternative investments are and why they are the fastest route to growing your assets or retirement savings.
He sheds light on how the most successful investors in the world keep getting wealthier and how to use an endowment like strategy to position your retirement assets.
Brian explores alternative investments opportunities.  He goes over what larger investors are doing to diversify away from the public market in an effort to help clients protect downside risks. The shift in investment philosophy amongst the largest investors is something to pay attention to as it could offer valuable insights on how to position your retirement assets. Brian explains why it's prudent for investors to adopt an endowment like model. The wealthiest and most successful investors in the world keep getting wealthier, not because they are lucky or privileged, but because they are playing a different game than the average investor. According to Brian, with medical advancements extending life beyond what we have seen in the past, we are entering a longevity dilemma as people may find themselves living longer than their assets. For Brian, the traditional retirement age tied to social security eligibility has longevity implications that are being overlooked. The 4% rule suggests you can safely withdraw 4% of your retirement savings annually with the assumption that the balance in your account will sustain you for 30 years. Brian shares why he believes the 4% rule is not sustainable in the modern age.  There's risk with any type of investment and alternatives are no exception. Brian talks about portfolio diversification and why we need to expand the definition of diversification. Brian talks about alternative investments and why you should consider having a portion of your savings in private equity, private debt, real estate trusts, and even oil and gas. For Brian, the stock market may be a core component of a portfolio, but it cannot be the only holding.  Should investors get out of public markets entirely?  According to Brian, investors should not get out of the market entirely, but should acknowledge that there are many investment opportunities that are far better than the stock market.   We are seeing the world change before our eyes. The way we invest today needs to be forward looking to consider the changes that are underway.  
Mentioned in this episode:
BrianSkrobonja.com
SkrobonjaFinancial.com
SkrobonjaWealth.com
BUILDbanking.com
Common Sense Financial Podcast on YouTube 
Common Sense Financial Podcast on Spotify
 
References for this episode:
kiplinger.com/article/investing/t047-c032-s014-to-succeed-at-investing-do-what-yale-does.html
brianskrobonja.com/podcasts/posts/ep-52-strategically-separating-your-assets-with-the-five-minute-retirement-plan/
prudential.com/financial-education/4-percent-rule-retirement#:~:text=The%204%25%20rule%20comes%20with,close%20to%20covering%20your%20needs.
wsj.com/finance/investing/pension-funds-stocks-bonds-679b8536
imf.org/external/pubs/ft/wp/2000/wp0018.pdf
weforum.org/agenda/2022/04/longer-healthier-lives-everyone/
nmhc.org/industry-topics/affordable-housing/apartment-supply-shortage/
sealynet.com/news/sealy-company-small-industrial-spaces/
nationalaffairs.com/publications/detail/inflation-and-debt
nasdaq.com/articles/revisiting-the-classic-60-40-portfolio-as-challenges-loom
 
 
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC. (MAS), Member FINRA & SIPC. Advisory services offered only by duly registered individuals through Skrobonja Wealth Management (SWM), a registered investment advisor. Tax services offered only through Skrobonja Tax Consulting. MAS does not offer Build Banking or tax advice. Skrobonja Financial Group, LLC, Skrobonja Wealth Management, LLC, Skrobonja Insurance Services, LLC, Skrobonja Tax Consulting, and Build Banking are not affiliated with MAS.
Skrobonja Weal

In this episode, we delve into the link between overall retirement quality and the confidence you have in your financial plan. We emphasize how a well-designed retirement strategy tailored to your needs, not solely reliant on market performance, is pivotal for boosting confidence and making your retirement plan a reality you can rely on.
Addressing common fears, exploring emotional extremes, and understanding the evolving landscape of retirement planning, will help you discover the significance of income-focused strategies and a diversified asset approach in building confidence in your retirement plan.
When it comes to retirement, your quality of life in these golden years is often predicated on the level of confidence you have regarding your situation. A poorly-designed retirement plan can often cause emotional confusion, which leaves you feeling insecure and lacking confidence. Confidence is typically at its peak when a plan is optimized and is designed around meeting the needs of the client and not relying entirely on market performance. Retirement confidence is in direct correlation with how well your plan is designed to manage your exposure to risk and its ability to fulfill cash flow requirements. A plan built on hope and optimism can lead to very emotional times when the market doesn’t work out the way you’d hoped. Many client conversations relating to retirement are often centered around insecurities the client is working through. Common fears include running out of money before running out of life, market crashes, having a health crisis, missing opportunities, or simply making mistakes. There are typically two emotional extremes, no confidence or complete overconfidence. A lack of confidence leads to avoidance behavior and avoiding decisions, which often makes a person vulnerable to the very things they are afraid of. Overconfidence leads people to underestimate their vulnerabilities. Being skittish or practicing decision avoidance or fearing the idea of making a bad decision are all confidence killers, and the ultimate irony of this behavior is actually preventing the solution from being implemented, which can turn your fears into a reality. Confidence is about being able to rely on your retirement plan to do what you need it to do. If your retirement plan is anchored to the stock market, your confidence level relies entirely on the performance of the market. Most people’s retirement plans involve a stock market portfolio they plan to liquidate over time, Social Security, and a pension, but that’s really just the start. This paradigm seems to be rooted in watching our parents or grandparents work for decades in the same job and then retire with their pensions and Social Security benefits. However, circumstances have changed, and what worked back then isn’t going to cut it now. Pensions and company-provided retirement plans have been on the decline since the 1980’s. Baby Boomers started putting their money into retirement plans starting in the 90’s, which caused a growing stock market. 2016 was the first year that Baby Boomers started taking out money from those accounts. Those who ran the markets up are now the same group that is putting selling pressure on the markets, but there are other influences as well: government spending and policy, Fed policy, pandemics, interest rates, inflation, and more. When you lack certainty in the market, algorithms and a 24/7 news cycle can exacerbate the situation. There are two fundamental things that can have a profound impact on your retirement confidence. First is solving for income using income products. The foundation of a retirement plan is to generate consistent income, and unfortunately, consistency is not synonymous with the stock market. Separating your assets between long-term growth in public investments and income-generating private and fixed assets is a crucial component of being confident in your overall retirement plan.  
 
Mentioned in this

The complexity of Social Security calculations can cause some confusion around when someone eligible should file and claim their benefit. There are a lot of variables to consider and acronyms to decipher that can make Social Security feel like a confusing hedge maze.
Let’s cut through some of the noise and clarify some of the most pressing questions around Social Security benefits and what questions you need to consider to determine what’s best for you and your family.
Social Security has many layers, and the concept of eligibility can be pretty complex. It's not always clear when and how someone should begin taking their benefits because being eligible doesn't necessarily mean you should turn that benefit on. Social Security benefits can be turned on as early as age 62. Each year the benefit is delayed, you receive what is called a delayed retirement credit or DRC. These DRCs guarantee an automatic 8% increase in your Social Security benefit every year you delay up to age 70. There is also your full retirement age. This is the age when you are eligible to receive the full benefit without any offset for having earned income. Earned income being income from employment, which is different from income received from investments, pensions or annuities. For those born in 1960, or later, your FRA is age 67. Benefits are calculated by the Social Security Administration by taking 35 years of earnings that are indexed for inflation. Any years you didn’t work are counted as a zero in your average earnings calculation. These annual amounts are then totaled and divided by four and 20 months to arrive at the monthly figure known as your average indexed monthly earning. This number is different from your benefit amount. The SSA then applies a formula to that number which determines your primary insurance amount or PIA and this is your monthly Social Security benefit. If you choose to take your benefit before your FRA while employed, there's an offset that can significantly reduce the benefit if your income exceeds $21,240 in 2023. This reduction is $1 for every $2 of earned income over the limit. In the year you reach your FRA, the limit increases to $56,520 in 2023, with a benefit reduction of $1 for every $3 of earned income over the limit. After you've reached your FRA there's no earning limits and you receive the full benefit with no income offsets. Provisional income comes into play after your benefits are activated. Your provisional income is calculated by taking your adjusted gross income plus half of your Social Security benefit. If that total is less than $25,000, your Social Security benefit is not subject to federal tax. If it is  above 25,000, but below 34,000, 50% of the benefit is taxed, and if it's above 34,000, 85% of the benefit is taxed. If you're a government employee, there's something called a Windfall Elimination Provision, or WEP. And there's also a Government Pension Offset, or GPO. There are three common conversations we have with clients when it comes to Social Security. The first thing is determining the breakeven point. One method for deciding when to take Social Security benefits involves calculating the breakeven point, this is the future point in time when the value of one option equals that of another. For example, if your FRA benefit is $2,000 a month, and $1,400 at age 62, there's a $600 a month difference. When compared to waiting the five years and taking the full amount, the breakeven point would be 11.6 years. Something else to keep in mind is that by taking a benefit early, you reduce the amount of spousal benefit made available since the benefit in and of itself has been reduced and this could be an important consideration. The second consideration relates to one's health and longevity. If you don’t expect to live past that breakeven point, taking the benefit early might make more sense. From this perspective, it could be a win-win situation if they start receiving benefits early and th

If you tune into social media, there are a lot of influencers and gurus peddling one-size-fits-all financial advice and unfortunately plenty of investors base their strategies on what these people recommend.
Find out why basing your investment decisions on what’s trending on TikTok is short sighted and discover the seven indispensable steps of building wealth that are the most common among our most successful clients.
Conventional wisdom such as paying off mortgages, quickly maxing out 401(k)'s or buying only Term Life insurance can be short sighted. Wealth isn't created by following rules of thumb, random one-size-fits-all fixes, or chasing trendy financial tips. Wealth is created by developing a custom-tailored strategy that facilitates wealth creation and prepares you for the future. The wealthiest people aren't doing the same things as the other 99%. Avoid rushing and applying random tidbits of information without first creating a comprehensive wealth strategy. We all have to take a long-term strategic view of wealth creation. There are seven key steps in building wealth that are common amongst all of our most successful clients. The first step is understanding cash flow. Cash Flow isn't about monthly budgeting. It's a 12-month roadmap that outlines where your money will go including savings, investments, and day-to-day expenses. Effective cash flow management is about abundance and a focus on wealth creation. Budgeting operates from scarcity and measures success by such things as paying off debt or simply making ends meet. Wealth doesn't just magically form out of scarcity. Step two is really understanding your investment risk tolerance. Many investors carry far too much risk for their stated tolerance levels but have really no way of gauging what risks they're carrying. It's crucial to know where you fall on the risk spectrum and to work with a professional to help you tailor your investment strategy. Complete the questionnaire on our website to discover your risk tolerance and know where to start that conversation. Step three is to learn your tax allocation. Knowing how to help mitigate tax liabilities is an essential aspect of building and keeping wealth. Tax deferral methods like 401 K's can be useful in some situations, they are not what we would consider comprehensive tax strategies. A deferral is not a savings. Knowing how to allocate assets to mitigate tax liabilities requires an understanding of your entire financial picture. A professional trio of maybe a certified public accountant, CPA, certified private wealth advisor, CPW, or a tax attorney, is essential for making the most of the opportunities available to you. Step four is to understand investment verticals. The more public market investments that are acquired such as stocks, bonds and mutual funds, the deeper the portfolio vertically grows, but adding more of the same to your portfolio doesn't necessarily mitigate the exposure to the risk you're trying to diversify away from. Horizontal opportunities are outside of the same vertical such as real estate businesses, private equity, and life insurance annuities, and they don't share in the same risk pools that each vertical may be exposed to. Effectively diversifying reduces the risk in a portfolio overall and forms a stable foundation to build on. Don't put all your eggs into one vertical basket. Step five is establishing multiple streams of income. Relying on a single source of income, like your job or a single investment is a risky proposition. Businesses, royalties, passive income investments, or other consulting or freelance opportunities are all ways to create more than one stream of income. More sources of income mean your financial situation is more robust during economic storms and you have more capacity to take advantage of opportunities. Number six is to adopt financial delegation. There's usually an element of cost and trust when managing financial decisions in a DIY fashi

In this episode, Brian Skrobonja answers the top questions he receives from people looking for help with their financial plan.
He sheds light on why a plan is more than just picking stocks, what most people get wrong about passive income, and the benefits of knowing how much tax liability you’ll have in the future.
Brian answers the top questions he receives from people looking for financial planning assistance.  He starts by explaining why a financial plan is more than just picking a few stocks or bonds. Unfortunately, there are many situations where products are being sold instead of financial plans being developed. For example, an annuity salesperson sells an annuity to somebody and suggests that the product is the retirement plan.  So, what does a good financial plan look like?  According to Brian, the first step is defining what success looks like. Growing your money is not a goal. You must understand and clearly know why you are saving money.  The other question Brian gets asked a lot is about passive income--what it is and why it’s important.  Passive income is income that is generated from an asset; it’s not cash in hand from selling an asset. For Brian, a retirement income plan cannot exist without passive income. Next is knowing how much future tax liability you have. The question here is what will you do to mitigate those taxes and what strategy do you have in place right now to reduce what taxes you owe right now? The other big question you must address when building a financial plan is the dangers you will face now and in the future. Life doesn't run in a positive straight line. We have to consider health challenges, an unforeseen death, market declines, and other scenarios that can disrupt your plans. The unique approach that Brian and his firm take is that they are more interested in knowing what clients want in life, than following a process to try to flush out the problems that could potentially disrupt those plans, and find solutions to satisfy those things. According to Brian, a plan has little to do with products and everything to do with what you want and how you can make that happen. Brian reveals the amount people have to pay to access his services and why he settled on that particular figure.  He also breaks down the definition of a professional--they get paid for their knowledge and ability to help you.  If someone is working for free, you have to ask what value is being delivered and what is their motivation for offering a free service.  Cost is only an issue when there's an absence of value and any fee without value is too high.  
 
Mentioned in this episode:
BrianSkrobonja.com
SkrobonjaFinancial.com
SkrobonjaWealth.com
BUILDbanking.com
Common Sense Financial Podcast on YouTube 
Common Sense Financial Podcast on Spotify
 
 
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC. (MAS), Member FINRA & SIPC. Advisory services offered only by duly registered individuals through Skrobonja Wealth Management (SWM), a registered investment advisor. Tax services offered only through Skrobonja Tax Consulting. MAS does not offer Build Banking or tax advice. Skrobonja Financial Group, LLC, Skrobonja Wealth Management, LLC, Skrobonja Insurance Services, LLC, Skrobonja Tax Consulting, and Build Banking are not affiliated with MAS.
Skrobonja Wealth Management, LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Skrobonja Wealth Management, LLC and its representatives are properly licensed or exempt from licensure.
The firm is a registered investment adviser with the state of Missouri, and may only transact business with residents of those states, or residents of other states where otherwise legally permitted subject to exemption or exclusion from registration requirements. Registration with the United States Securities and Exchange Commission or any state securities authority