How to Take Advantage of a Weak Dollar
When the dollar goes down, where should your dollars go?
Although the dollar has experienced what some experts call a "confounding" rally lately, if you're still worried about the greenback taking a downward dive, you're not alone. At the very least, financial analysts expect the U.S. economy to grow slowly for the foreseeable future. Mix in the long-term impact of large-scale stimulus spending and mounting deficits, and your dollar-centric investments might be less secure than you think.
"We are in an environment where there is no such thing anymore as a 'safe asset,'" says
The good news is that there are plenty of ways to hedge against a lackluster domestic economy and a declining dollar, whether it's simply increasing your exposure to U.S. companies with large global footprints or investing in the local currencies of growing economies.
Beef up your exposure to blue chips.
If you have big names like
If you don't already own some large-cap U.S. stocks, Rawson recommends iShares
Don't ignore emerging markets.
For those looking to grow their investments with a five-year or longer time horizon, "it would be dangerous to ignore emerging markets," says
Pursche and Rawson recommend WisdomTree Emerging Markets Small Cap Dividend (DGS), an ETF that gives investors concentrated access to a group of rapidly growing economies including
Because international markets can be more complicated and less transparent than U.S. markets, Rawson recommends sticking to actively managed funds or fundamentally-weighted ETFs like WisdomTree Emerging Markets Small Cap Dividend. The fund weights companies based on the dividend they pay to investors rather than the traditional method of weighting based on market cap. "What you're doing is trying to shift toward quality companies that have the wherewithal to be able to pay a dividend. It's a little bit of a tilt to higher-quality firms and it gets you a little bit closer to some level of safety and comfort."
Cash in on foreign currencies.
Holding a foreign currency in an overseas savings account isn't your best option for betting on currencies, Rawson says, because those types of investments won't earn you a competitive return compared with inflation. Instead, he recommends WisdomTree Emerging Markets Local Debt (ELD), an ETF that holds local currency bonds in countries such as
Commodities are key.
Just because the U.S. economy is in a daze doesn't mean other countries have stopped to gape. "Even though we've had this tremendous recession in the U.S. and a slow recovery, foreign economies--particularly developing markets--are going to grow faster," Rawson says. "It affects U.S. investors because as those economies grow, their demand for internationally traded commodities such as wheat, oil, and precious metals, is going to grow also."
With its exposure to globally-priced commodities and other non-U.S.-dollar assets, Vanguard Emerging Markets Stock (VWO) can help investors capitalize on the commodities markets and commodity-producing foreign countries. The fund has large stakes in natural resources companies in the oil, natural gas, and steel industries--all of which are expected to see major growth in coming years. "When you look at the currencies of
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