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Inflation is once again outrunning wage growth and that’s creating a problem for anyone sitting on cash.
The inflation rate climbed 0.6% in April, pushing the annual rate up to 3.8%, a three-year high (1). And consumer prices rose 3.8% year over year while inflation-adjusted hourly wage growth came in at 3.6%, according to CNN (2). That means the purchasing power of many Americans is slipping, even as they continue to earn more on paper.
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For savers, the challenge can be even more frustrating. If your savings account is earning less than the rate of inflation, your money is effectively losing value over time.
That’s why some financial advisors are rethinking where they keep their own cash. While many still prioritize safety and liquidity, they’re increasingly looking for places that can help preserve purchasing power instead of letting savings become what one advisor called “dead money.”
Advisors are cutting expenses before touching their investments
Andrew Fincher, certified financial planner at VLP Financial Advisers, told MarketWatch (3), “Inflation has definitely changed the way many people think about day-to-day spending and long-term planning.”
Fincher said that his plan of attack amid the inflation squeeze was to take a hard look at day-to-day spending.
“I’ve become more focused on cash flow efficiency — reviewing recurring expenses more closely, being more deliberate about large purchases and keeping a higher emphasis on value rather than convenience spending,” he said.
Andrew Herzog, certified financial planner at the Watchman Group, told MarketWatch that he was shifting what classified as a family need to save money. He canceled the weed treatment and lawn fertilization service they’d been using, since “pursuing a perfect lawn is no longer viable.”
Nicholas Bunio, certified financial planner at Retirement Wealth Advisors, told MarketWatch that he has been thinking twice about bigger purchases — and it’s been an ongoing process. “Last year, I put off getting a new set of irons and this year I’m putting off buying a new telescope, as I’m an amateur astronomer,” Bunio told Marketwatch.
Bunio and his family have also shifted how they view dining out. “We don’t go out on random days anymore. Just birthdays, anniversaries and Mother’s Day,” Bunio said. “Cutting back saves a few thousand bucks.”
Read More: Thanks to Jeff Bezos, you can become a landlord for $100 — without the headache of actually being one
Where financial advisors are parking cash to fight inflation
When it comes to your savings and investments, you could also consider how your financial planning stacks up when it comes to inflation.
To make it worthwhile, your savings interest rate should be higher than inflation, otherwise you’re losing money.
It’s a stressful thought, especially if you are saving for a short- or medium-term goal and you want a low-risk option so that you can withdraw your money when you need it, without worrying about whether the market is in a downturn.
Short-term Treasury securities and I-bonds
Jeff Judge, certified financial planner at Chesapeake Financial Partners, told MarketWatch that he moved cash into low-risk, government-backed investments.
“I shifted some cash into shorter-duration Treasurys and I-bonds when rates were favorable,” Judge said. He noted that he “didn’t rebalance out of equities, but I made sure I wasn’t holding two years of cash in a savings account earning nothing. That’s dead money right now.”
Government-backed securities aren’t the only place cash can work harder. For savers who want to keep their emergency fund accessible while still earning a competitive return, high-yield savings accounts could be a compelling option.
A high-yield account like a Wealthfront Cash Account can be a great place to grow your uninvested cash, offering both competitive interest rates and easy access to your money when you need it.
A Wealthfront Cash Account currently offers a base APY of 3.30% through program banks and new clients can get an extra 0.75% boost during their first three months on up to $150,000 for a total variable APY of 4.05%.
That’s ten times the national deposit savings rate, according to the FDIC’s March report.
Additionally, Wealthfront is offering new clients who enable direct deposit ($1,000/mo minimum) to their Cash Account and open and fund a new investment account an additional 0.25% APY increase with no expiration date or balance limit, meaning your APY could be as high as 4.30%.
With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, you get access to up to $8 million FDIC Insurance eligibility through program banks.
Treasury bills and CDs
Another certified financial planner, Catherine Valega, with Green Bee Advisory, has been giving similar advice to her clients. “Make your cash and emergency savings work for you […] money markets, Treasury bills [and] CDs for that short term cash,” Valega told MarketWatch, noting that she recommends you “add more stocks as your time horizon extends beyond three years.”
For those with cash sitting on the sidelines, CDs can be an easy way to earn more without taking on stock market risk. If you’ve got money earmarked for future expenses — but don’t expect to need it anytime soon — locking it into a CD could help generate a steadier return than a traditional checking account.
In exchange for keeping your money deposited for a fixed period, banks typically offer higher interest rates than standard savings accounts. The result is a low-maintenance way to put idle cash to work while preserving your principal.
You can shop around for competitive rates and terms through CD Valet.
The platform tracks over 40,000 verified rates from FDIC-insured banks and NCUA-insured credit unions nationwide. Unlike other websites, they show every publicly available rate, ensuring you have a comprehensive view of the market.
Plus, their CD rates are updated continuously, so you can shop, compare and open CDs with ease.
Crypto
Certified financial planner Mike Casey, with AE Advisors, chooses to beat inflation by turning to crypto. “The thesis is straightforward: a fixed supply, significant institutional adoption and a truly neutral monetary asset,” Casey told MarketWatch. “I see bitcoin the way earlier generations viewed gold, a non-correlated store of value, sized appropriately within an overall allocation.”
Of course, bitcoin isn’t for the faint of heart. The cryptocurrency has lost over 45% from its record highs in October. But many bulls believe this might be a sign that the crypto winter might be on its last legs.
For those wanting to jump on the crypto bandwagon, the dip could be the perfect time to add them to your portfolio. Platforms like Kraken can help make trading cryptocurrencies a breeze — whether you’re an acolyte or a priest.
You can invest in 600+ cryptocurrencies*, including Bitcoin, Ethereum, Solana, XRP and more, or set up recurring buys to invest automatically.
For those who want greater control, Kraken PRO offers a highly customizable interface for active traders. Opening an account is quick, with a simple sign-up, verification and short investor profile to get started.
*Not investment advice. Crypto trading involves risk of loss. View legal disclosures at kraken.com/legal/disclosures. The views and opinions expressed in this article are those of the author and do not necessarily represent the views or opinions of Kraken or its management.
Find a reliable advisor
A good financial advisor should be someone you’d confidently recommend to the people closest to you. If you’re hesitant to do that, it could be a sign that the relationship isn’t working as well as it should.
The stakes only get higher as your wealth grows. Investors with portfolios of $250,000 or more often face increasingly complex decisions around taxes, withdrawals, portfolio allocation and preserving wealth over the long haul.
Those challenges can require a level of planning that goes well beyond basic investment advice. Managing withdrawals, minimizing tax exposure and ensuring long-term sustainability often requires greater coordination and strategic planning than it once did.
No matter how much you like your financial advisor as a person, if they’re not keeping you on track to reach your financial goals, it might be time to find another pro who will.
If you have a portfolio of $250,000 or more, finding a reputed FINRA/SEC-registered advisor near you is now easier than ever with WiserAdvisor.
Just answer a few questions about your savings, retirement timeline and overall investment portfolio and WiserAdvisor will review its network to match you — for free — with up to three vetted, reputable advisors aligned to your specific needs.
WiserAdvisor does the heavy lifting when vetting financial advisors on its roster. Each advisor is screened based on their years of experience, their SEC/FINRA registration and records and compensation criteria.
Just schedule a no-obligation consultation with your matches to find the best fit for your long-term goals.
Note: WiserAdvisor is a matching service and does not provide financial advice directly. All matched advisors are third parties and specific financial results are not guaranteed.
– With files from Rebecca Payne.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
Bureau of Labor Statistics (1); CNN (2); MarketWatch (3)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
