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.

One solution? “We have a fundamental belief in the power of rebalancing portfolios. During this process, we determine whether we will hold excess cash per the clients' unique situation, risk tolerance and time horizon,” Folkes said.

“Every client's situation is different. And unfortunately, so many people have a hard time getting their heads around the effects of inflation on their long-term retirement plans, which can erode their purchasing power. As a result, we are constantly having inflation conversations with clients,” she added.

Randy Bruns, founder of Model Wealth, based in Naperville, Ill., said he and his partner worry most about inflation “for retirees whose lifestyles are largely funded by investments,” he said.

Bruns said they design portfolios for inflation protection using a healthy dose of both stocks and bonds. “Inflation expectations are automatically built into the current market prices. But sudden, unexpected inflation can disrupt the prices of both stocks and bonds. For this reason, we recommend short-term inflation-protected bonds (TIPS) as a partial component of the bond portfolios for retirees. This exposure provides an asset class that can be expected to perform relatively well in such an environment," he said.

Model Wealth uses the Vanguard Short-Term Inflation Protected Index (VTIP), “which gives us pure inflation protection without long-term interest rate risk. We typically use it for 20% of clients’ bond portfolios, depending on their income needs. I like to know there is two to three years deep in each bond portfolio,” Bruns said.