As the U.S. dollar weakens, investors are looking into international mutual funds, exchange traded funds (ETFs) and currencies. Bonds allow a way to invest in another country’s currency and some can have attractive rates. Walter Updegrave for Money Magazine says some Icelandic bonds were paying yields as high as 14.3%. While these international bonds sound attractive, they are not yet available in ETF form and buying them individually can be cumbersome and risky. Realize you will need to exchange dollars for the local currency and then convert the currency back to dollars if you sell or if the bond matures. Consider how currency movements will affect your overall returns before you buy a foreign bond.
As the U.S. dollar continues to fall, there are currency gains to be enjoyed as well. But buyer beware: A currency can work against you. Just because the currency was stronger at the time of purchase does not guarantee that it will keep its strength against the dollar when the term is complete. Remember currency exchange fees and transaction costs, as those will all cut into your gains too.
Global and currency ETFs are available for investors to hedge the dollar in a convenient way; you don’t have to exchange dollars for foreign currency. However, this doesn’t eliminate the risk.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.