Q: Do you think the value of the U.S .dollar continue to decline? If so, what type of investments will protect my portfolio?
A: There are three factors that suggest the U.S. dollar will continue to decline in the near future.
1) The recent debt the U.S. has assumed trying to jumpstart our economy
2) The large U.S. trade deficit
3) The slow economic recovery from our current recession.
If this assumption is correct and the U.S. dollar continues to lose value, then a collection of emerging-market currencies would be a reasonable way to protect your portfolios and act as a hedge against the currency risk. But buying emerging-market currencies can be difficult because most of us have never traded foreign currencies before. For this reason I recommend considering emerging market bond funds that invest in a collection of emerging market currencies. I recommend buying bond funds instead of buying the actual currencies directly because each bond fund is professionally run by a bond fund manager, which decreases your investment risk substantially. There are many different emerging market bond funds to choose from and you can research available options at www.morningstar.com
Why emerging market bond funds? Unlike the US, many emerging countries run trade surpluses, are less indebted to the rest of the world and will likely grow faster than the US as a result. This helps strengthen their currencies.
If you’re interested in emerging market bond funds I encourage you to do additional research. You should never invest in anything without first understanding all the risks involved and you should review your specific investment needs and risk tolerance with a Certified Financial Planner.
Matthew Brandeburg, CFP® has six years of financial planning experience and runs his own business, Bridgeway Financial Group, LLC, based in Columbus, OH.