Ways to Hedge against Falling U.S. Dollar - If all your money and investments are in U.S. dollars, the falling value of the U.S. dollar is a huge concern. After record stock market and real estate market declines, the next big theft of your money will be devaluing of the U.S. dollar--in simpler terms, inflation. Your dollar simply won't buy as much as it did before if the value of the U.S dollar continues to fall. Some consider this the most insidious of taxes.
So you need insurance, currency insurance. You need some way to hedge against the falling U.S. dollar. Below are some options suggested in Several ways to hedge against falling dollar by Kathleen Pender.
Buy currency - You could go to a bank that handles foreign currencies and exchange your dollars for euros, pounds, yen, etc. High transaction costs make this an expensive option, plus the currency won't earn interest, AND you'll have to find a place to physically store all that foreign cash. Not a great option.
Foreign CDs - Everbank, an online bank in Jacksonville, Fla., offers CDs in 15 foreign currencies. Minimum investment is $10,000 and maturities range from three to 12 months. When a CD matures, Everbank converts principal and accrued interest back into U.S. dollars at a rate that is within 1 percent of the spot rate (the 1 percent (or less) represents Everbank's fee). Everbank also provides foreign currency savings accounts, which have smaller mininum investments and daily liquidity--but they don't pay interest. Everbank deposits are insured by the FDIC insurance (but are not insured against currency losses).
Foreign stock funds - You can buy foreign stocks (individually or through a fund), your return depends on what happens to the price of the stocks in their home market and what happens when those foreign profits or losses are converted back into dollars.
Foreign bond funds - Buy a fund that invests in foreign bonds. Return depends on interest the bonds pay, plus or minus currency gains or losses. If you want the maximum overseas exposure, a "foreign" or "international" fund which avoids U.S. investments. Funds named "global" or "world" may invest significant portion of their capital in the United States.
Hard currency funds - Similar to foreign bond funds, hard currency funds invest in short-term money market securities. This basically removes interest-rate risk. So they are essentially a foreign money market fund--except for one thing: Where money market funds seek to preserver value, a hard currency fund can lose principal if the dollar increases in value.
Index funds - Two fund groups cater to speculators -- Rydex and ProFunds -- and offer mutual funds that track the U.S. dollar using derivative securities. These funds track the dollar against six major currencies.
Exchange-traded funds - Rydex created a line of exchange-traded funds (ETFs) that invest directly in foreign currencies. These funds trade throughout the day on the New York Stock Exchange, just like stocks.
|How To Profit From The Falling Dollar |
by Cecil Robles