How to Invest outside the Dollar

Rydex can get you out of the dollar. It has ETFs denominated in the Australian Dollar, the Pound Sterling, the Canadian Dollar, the Euro, the Yen, the Mexican Peso, the Swedish Krona and the Swiss Franc. Essentially these are money market funds, but in foreign money. They can be bought and sold through any broker. In addition to the chosen currency’s appreciation, if you get it, you get interest, ranging from under two percent right now on the Swiss Franc to nearly seven percent on the Mexican Peso. Note that apparent high reward often signals high risk.

If that’s too tame, Rydex also sponsors a mutual fund, RYWJX, that aims to produce double the inverse of the US dollar. This exciting fund invests in short sales, swaps, options and futures. The minimum initial investment is $25,000. They have a fund for those who believe in the rise of the US dollar, too.

Everbank offers a bank account in foreign currency. It’s $2,500 minimum to open an account. It pays foreign interest (on accounts over $10,000), allows you to transfer money among foreign currencies inexpensively, and it’s FDIC insured. That is, insured against loss due to Everbank’s failure, not against loss in your currency picks. Everbank also offers CD’s in 13 foreign currencies.

Another way to flee the dollar is foreign stocks. PBR, in Brazil, may have a huge oil strike. TTM has a cute little car, and other assets. VIP sells cell phones in Russia. Promising, but it’s hard to trust your money so far away.

Some American companies could actually benefit from a weakening dollar. Examples to investigate might include IBM and CSCO, which sell their technologies abroad, WMT, a worldwide retailer taking in foreign money, and even Starbucks, SBUX, which could benefit from rising incomes worldwide. It’s expensive coffee, but it’s a cheap date.

Gold and oil tend to go up as our currency crumbles. Foreign producers have to charge more in our sinking dollars to keep their profit the same in their money. To American eyes, this causes price inflation, which raises the price of commodity stocks. ETFs to look at include DIG and USO for oil, GLD for gold, and GDX for gold miners. If a price suddenly drops, which has happened before, you could get killed.

Forex is foreign exchange (currency) trading. It’s a huge supercharged 24-hour market that’s not for novices. When you hear of some trader who loses millions for his firm, gets canned and goes to jail, he probably did it in Forex.

Finally, there are mutual funds. A world fund invests all over the world, and a global fund invests everywhere but the USA. One candidate is FTSE All-World-ex-US-Index Fund, VFWIX, from Vanguard. There are many others. PIMCO Foreign Bond, PFUUX, is unhedged. This means it takes full advantage if the dollar drops more, and could take full losses if the dollar should rise.

Obviously, nobody knows what the dollar will do next. It may fall still farther, it might bottom today. So it doesn’t make sense to put all your funds offshore, like the rich used to do in a banana republic, unless you think the USA is becoming one. It could make sense to dip your toe in foreign waters. Choose a less volatile option, watch your investments carefully, and perhaps invest a bit in the rest of the world.

http://www.currencyshares.com
http://www.rydexfunds.com
http://www.everbank.com/001MoneyMarket.aspx
http://www.marketwatch.com
http://www.marketwatch.com/tools/mutualfunds/overview.asp?siteID=mktw&symb=VFWIX
http://www.marketwatch.com/tools/mutualfunds/overview.asp?siteID=mktw&symb=PFUUX
www.etfconnect.com