Schwab just raised staff pay 5%. McDonald's locations nearby are starting workers at $16 an hour. Those are the kinds of numbers our Managing Principal, Daren Blonski, pointed to when he told Financial Advisor magazine, for its article "How Advisors Are Positioning Client Portfolios For Inflation," why he doesn't think today's inflation is transitory. "Inflated labor costs aren't going back down and will be priced into everything you purchase," he said. To address it, he's been steering clients away from cash, CDs, and money markets, which he says amount to "an automatic 4% to 5% haircut" once inflation is factored in, and toward dividend-paying stocks and, for some clients, cryptocurrency like bitcoin as an inflation hedge.
Key Takeaways
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Rising labor costs, from big firms like Schwab to local employers, tend to get built permanently into prices rather than reversing once inflation cools.
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Traditional places to park cash like CDs and money markets can actually cost you money once inflation outpaces the interest they pay.
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Dividend-paying stocks were one way Daren repositioned client portfolios to keep pace with rising prices.
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Some clients also used cryptocurrency, including bitcoin, as a hedge against currency devaluation from aggressive money printing.
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Sonoma Wealth manages $420 million for what Daren describes as "everyday millionaires" in and around Sonoma Valley.
Positioning portfolios for changing economic conditions like this is core to what we do. Learn more about our Investment Management services.