Business Innovators Radio - Interview with Pasquale Sacchetta President of CFIG Wealth Management Discussing Interest Rate-Inflation Risk

Episode Date: July 1, 2024

Mr. Sacchetta is president of Westport based CFIG Wealth Management, LLC. He is president and an investment adviser representative of Continental Five Investment Group, LLC. He is a CERTIFIED FINANCIAL PLANNER® practitioner, an Accredited Estate Planner professional and a Chartered Life Underwriter designee. He specializes in retirement planning, estate planning, and business planning.Mr. Sacchetta is a member of the Estate Planning Council of Lower Fairfield County and the National Association of Estate Planners & Councils (NAEPC). He is a qualifying member of the Million Dollar Round Table, the Premier Association of Financial Professionals®.Mr. Sacchetta was born and raised in Connecticut. He graduated magna cum laude from Connecticut State University in New Britain, received his MBA from Fordham University in New York City, and his Chartered Life Underwriter (CLU) designation from the American College in Bryn Mawr, Pennsylvania. He is a life member of the U.S. Tennis Association and a member of the U.S. Golf Association. He is fluent in Italian.Mr. Sacchetta was recently named in the newly released editions and has been named in multiple previous editions, of the Marquis Who’s Who in Finance and Business, the Marquis Who’s Who in the East, the Marquis Who’s Who in America and in the Marquis Who’s Who in the World. He has earned numerous industry awards and distinctions. He has been quoted in local and national media.Learn More: https://www.cfig-wealth.com/Investment advisory services are offered through Continental Five Investment Group, LLC, a Registered Investment Adviser, 1555 Post Road East, Suite 206, Westport, Connecticut 06880.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-pasquale-sacchetta-president-of-cfig-wealth-management-discussing-interest-rate-inflation-risk

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of influential entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with us, Pesquil Saketa, who's the president of CFIG wealth management, and we'll be talking about interest rate and inflation risk. Pasquale, welcome back to the program.

Hey, Mike. How are you? Hey, doing good. I know this is kind of a deep topic. It seems like we used to take about three or four hours to talk about this particular one. Interest rate and inflation. We hear a lot about inflation in the news. And the frustrating thing is, as consumers, we pretty much can't do anything about it.

We just are impacted by it. So let's define what is the inflation and how it impacts interest rates. All right. Basically, the way interest rates work is the higher the rate, obviously, there's a reason for whatever is pushing up the rate. So normally there's a tie in to inflation. So the higher that rates go, it's to compensate you for taking a risk and whatever it is that you're doing. So you have to keep in mind that the more inflation you have, the more you have to offset that with a higher rate. And that basically affects, you know, a lot of things from the economy standpoint, which affects a lot of investments.

which affects a lot of investment decisions. What are the type of investments that are impacted by interest rates? The first thing that comes to my mind, and I'm certainly not the expert like you are, but I think of like CDs. If interest rates are up or inflation is up or down, then maybe the CD rates are going to change. But what are the other things that inflation will impact? Well, inflation really impacts many different things. But one thing, one key thing to keep in mind is that inflation, most people think higher prices, you know, is what inflation is all about.

But inflation really affects your currency. So when prices go up, it's not so much that. the price of an item is going up as much as it is that the value of the dollar is going down. So what you can purchase with a dollar is going down. It's not, as time goes by and inflation persists, what will happen is that your dollar buys less. So it's like your purchasing power. Yes. So inflation is really a, a.

matter of affecting the value of your currency of your dollar more so than it is the cost of something because the price of something may go up, but if the value of your dollar went up, it would offset inflation. Yeah. So it's really the core of it is what your currency is worth that could buy, whatever it is that you're looking to buy. So the reason that interest rates are tied into inflation is because if inflation, for example, is that 5% and you have a CD earning 5%, you're not making any money. All you're doing is keeping up with inflation.

And why is that important? Because, you know, you put dollars into CDs. And that's where the purchasing power comes in handy. that reminds me of back in high school you uh at least for me um you kept this like bookings in your senior year and it says what was the cost of gas now and and you know movies or jeans or whatever and i came across it a few years ago and it was like wow it is just shocking where prices have gone and to your point there if the purchasing power if our purchasing power is negatively impacted by inflation, now the calculation that you made a few years ago to say you need X number of

dollars in retirement, maybe that calculation now is off. Absolutely. So then once you discover that, okay, this calculation is off, not from anybody's mistake, but because inflation has now crept in over the years, what do you do about that? You know, because all of a sudden now just buying food and closing gas and normal things is costing way more money. And now the length of time your retirement savings is going to last now has changed. What are some of the things you're advising your clients to do if that starts happening? Well, the number one thing to do is to adjust your portfolio so that your return is higher than the interest rate and inflation risk.

And that's something that you need to do. do. Well, with our clients, we do that on an ongoing basis. So when we had the inflate, you know, when we had higher inflation just recently, we knew that that was, we knew that was a, short-term situation that it wouldn't persist, although some level in inflation has persist. But, you know, you have to really, you have to be on guard for that because you don't want to have, you know, conservative return in the portfolio only to find out it buys less because you can't get it, the currency that, you know, the currency value that you could previous. And also some of the, some of the things to keep in mind is rebalancing the portfolio,

but keeping in mind risk and volatility because you don't want to say inflation is crept in, we now need to close this gap that we've discovered. So we're going to start increasing your risk and volatility so we get higher rate of return. because now that can go backwards on you. So keeping those things in mind as you're preparing that for a client would be huge. What are some other strategies that clients can consider to safeguard against all of this eroding effect of inflation? I think, you know, what's important is to focus on the long-term aspects. And in that regard, you know, if inflation, you know, if inflation,

turns out to be a short-term risk, then it's, you know, it's kind of like modifies itself. It's having the portfolio be such that you can make adjustments over time is the best way to control the inflation risk and to sort of bring it into where it should be. Does inflation and rising rates have impacts on some of these fixed situations like even Social Security? Is there an impact that way? Yes, for example, when seniors get Social Security, they count in a certain amount of fixed income. And the only way to adjust for that is to adjust their payouts for inflation. So, you know, every year there's an announcement of what will,

the social security, what will go up. And, you know, an adjustment is made because they need, and why is that adjustment made is because seniors need more money to buy the same things they were buying the prior year. 100%. So now it makes me think of this, too, when you think about the, you know, like annual review of your portfolio. And what if you're in an environment of inflation and you start thinking about, well, we should put some money in this type of account, maybe an annuity or CD or whatever the case is.

Do you want to keep your finger on the pulse of the time frame you lock up the money in the sense that what if inflation, you know, starts to kind of move in our positive direction in the year or two? You don't want your money locked up in something where you can't take advantage of now new opportunities, right? Yes, and that's something that we're cognizant of on a regular basis. For example, the duration of a bond portfolio is very important. You know, if you go out 30 years, you're taking the highest interest rate risk and inflation risk there is. So if you go short term in your duration, let's say, is five years or less, then you're not taking as much risk. on the actual valuations the changes in the value of the bonds. So, you know, you have to know is, am I making a commitment of a longer period of time,

is that consistent with what my goals are or the client's goals? And if so, is it worth taking that extra risk? And so generally speaking, unless you're in, you know, a 15 or 16 percent interest rate environment, it's better to to stay short term and have a shorter duration and limit your risk. Yes. Yeah, 100%. So can you think of an example where you've worked with a client before and they were facing some of these inflationary situations and then it caused a gap in what they're money was able to do for them, and then you put together a plan to help mitigate that.

Yes, it's, you know, we have client situations like this all the time. And what happens is that, you know, by having a plan in place that monitors it in an ongoing basis is the best way to make sure that it doesn't sneak up on you. Yeah. But it is, there are situations where, clients don't see the big picture because they may have only been informed about one specific product or a service or, you know, and it's hard for them to kind of put the total picture together. But we do that for them. So we're able to to make sure that everything is moving along in sync right, you know, right from the start right when we start working with clients.

and any changes along the way are, you know, just part of the ongoing maintenance of their long-term plans. Yeah, and I think the biggest thing is just to keep in mind, you don't want to make big moves that are reactionary. You don't want to see one thing and go, we need to make this jump. You need to take it, you know, from a calm approach and have those plans in place. and then when you review quarterly or annually, now you're making small adjustments, you're not reacting. And I think that's where it gets people in trouble sometimes, I would suspect. Absolutely. Well, I think that this is such a huge opportunity for people to take a look at their retirement plan and factor in this inflation risk because when inflation and we might wake up tomorrow and inflation is through the roof or wake up the next day and now.

it's under control, you never know. But that purchasing power, I feel like is one of these things that are underneath the surface that you don't calculate in. You put your pencil to paper and go, I need this much money to provide this much income in retirement. But then when you have that inflation risk that starts quickly eroding away. So these have been such great topics to talk about, Pasquale. And if someone is interested in learning a little bit more and getting more well versed in how inflation could impact their portfolio and what they can do to mitigate that. What's the best way they can learn more and then also reach out and connect with you? Our website address is www.cfig-wealth.com. And our number is 203 to 210200. We welcome any calls and

requests for information. Excellent. Well, thank you so much for coming on. It's a real pleasure talking with you today. Thank you, Mike. You too. Thank you for your time. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.w.com.