The dollar
The U.S. dollar has looked like a troubled celebrity lately, occupying the headlines every other day.
But the currency’s hard luck is anything but glamorous.
Don’t look to the U.S. government for help in bolstering the greenback.
Having already reached the lowest level since it began trading against the euro in 1999, the U.S. currency has lost about a quarter of its value in the last five years. It has dropped about 7 percent against the European common currency in the last month.
While U.S. exporters are hailing the dollar’s drop — their goods are becoming relatively cheaper overseas — as the currency loses value, it lowers domestic purchasing power overall.
The easiest way to bet against the dollar is to pick one of several non-U.S. currency exchange-traded funds and hold them.
Say you took a position in the CurrencyShares Euro Trust, an exchange-traded fund that’s a "cost-effective investment in the euro," according to the fund manager. You would have gained 22 percent in the 12 months through March 14. The company’s Japanese Yen Trust ETF has risen 17 percent.
The major stumbling block with the individual funds is that you have to guess which currency will provide the best insurance against the greenback.
Currencies are unpredictable. Economic conditions will change. Should the Fed need to raise interest rates to curb inflation, the dollar will recover and your other currency positions may lose ground quick payday loan.
The dollar’s decline presents some worthwhile opportunities. Because most U.S.-based investors are unlikely to have large positions in foreign stocks and bonds, now is an excellent time to diversify.
It’s important to find growth in non-U.S. stocks that are boosting their earnings and dividends.
The Fidelity International Discovery Fund invests in non-U.S. common stocks with a focus on those that pay current dividends and show potential for capital appreciation.
The Fidelity fund, a staple in my 401(k) plan, has more than outpaced the dollar’s slide. It climbed 19 percent in 2007.
Another candidate is the iShares S&P Global 100 Index Fund. By tracking the S&P Global index, the exchange-traded fund attempts to sample the returns of some of the largest transnational corporations.
It gained 11 percent last year and has bested the return of the Standard & Poor’s 500 index of large U.S. stocks by 16 percentage points over the last five years.
It may not be popular to look abroad for growth and income, yet it sure beats watching those dismal headlines about the dollar’s drubbing. John F. Wasik is a Bloomberg News columnist.
Filed under: management by Wolf