From 2003 - 2005, the U.S. dollar fell sharply against
a number of major currencies, causing some investors
to worry about their investments. What if this continues
to happen? If this is a concern of yours, there are ways
to help protect your portfolio.
First, you can try to avoid investing in companies might be affected by a falling dollar — namely, companies that buy products from overseas. When the dollar declines in value against other currencies, imports (be they finished goods or raw materials) are more expensive. That’s because U.S. companies buy goods in a foreign currency that’s rising relative to the dollar, so they have to pay more to obtain those goods than they did previously. That may mean lower profits.
Another option is to invest in companies that often times benefit from the falling dollar. For example, a falling dollar makes U.S. exports less expensive, because American exporters sell their goods in foreign countriesand are paid in a foreign currency that is now rising relative to the US dollar. They can charge less for their goods and still make a profit, or charge the same and earn more. As a result, American companies can be more competitive against foreign counterparts.
You could also invest in companies that are generally less affected by the fluctuations in the dollar have little effect on profits. Some operate solely in domestic markets. Others have huge operations in many countries and a variety of currencies, but have entire departments dedicated to managing currency fluctuations.
Often, however, the falling dollar is perceived as a contributing factor to a decline in equity markets. Companies that are hurt by the falling dollar raise prices on their final products to offset the increase in their costs. As a result, consumers pay higher prices for goods, and real household income declines. That puts a damper on consumer confidence and spending, which could have a detrimental effect on stocks in general.
Of course, not all of the options mentioned in this article are right for all investors. See your advisor for specific information, and investment options that are right for you.
Important Facts You Must Know If You Already Own An Annuity Or You Are Considering An Investment!
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