As significant inflation grips America, a growing number of advisors are focusing investors on how it can erode not only their purchasing power, but any significant money they leave sitting in cash.

Inflation has hit a 13-year high, with the consumer price index jumping to 5.4%, according to the Bureau of Labor Statistics. To make matters worse, persistent supply-chain disruption and an energy crunch have been pushing up prices nationwide.

As Democrats push to pass a $3.5 trillion human infrastructure plan, there are growing fears that it will force the Treasury Department to print even more money, possibly devaluing the dollar further and creating new inflation hotspots.

“Right now, we are really focusing clients on inflation to make sure they aren’t leaving too much in cash,” said Daren Blonski, co-founder and managing principal of Sonoma Wealth Advisors, which manages $420 million. Outside of emergency savings, “needlessly sitting on cash amounts to an automatic 4% to 5% haircut,” he said.

“When I show clients how much money Treasury is printing on top of the impact of inflation, they say, 'I can’t sit on cash anymore,’” Blonski said.

This reckoning, however, is also forcing clients “to be riskier than before because the Federal Reserve is keeping rates so low that all the traditional places for cash are paying so little. They are actually costing clients money when inflation is factored in. ... Instead of CDs and money markets, we like dividend-paying stocks,” said Blonski, who uses iShares Core Dividend Growth ETF. The fund has a five-year return of 84% on top of paying dividends.

Blonski, who works with clients he calls “everyday millionaires” in and around Sonoma Valley, Calif., also uses cryptocurrency, including bitcoin, as an inflationary hedge in client’s portfolios.

“It’s a big deal to me that the government has printed trillions of dollars in the last 10 months. Every currency in the world is devalued. Bitcoin is a hedge because unlike fiat currency, only 21 million coins can be mined. That will create scarcity. I think it’s important to expose clients to all asset classes,” Blonski said.

He does not believe that inflation will be transitory. “Schwab increased staff pay by 5%. McDonalds here is starting people at $16 an hour. I have 18 staff at my firm and I can tell you they are worth it, but expensive. None of us will be turning to employees a year down the line and staying, ‘OK, inflation is over. I need to cut your pay.’ Inflated labor costs aren’t going back down and will be priced into everything you purchase,” he added.

When the discussion with clients about whether or not to hold money in cash comes up at Bridgeworth Wealth Management in Birmingham, Ala., “right now, it is a delicate balance between rising inflation, rising rates and the fear that parts of the market could be overvalued,” Ashley Folkes, the firm's director of marketing and growth strategies, said.

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