can an individual protect against currency devaluation?

Why bother? For 99.9% of us, we buy and sell, owe and invest, in U.S. dollars, so to a first approximation, it matters naught how many euros a dollar will buy. What you should be concerned first with, is inflation. That is when your dollars start to buy less of what you actually want to buy. Over the long term, the stock market is a good inflation- protector. If you want to *profit/speculate/invest* in currency fluctuations, that's a different issue, and that's not for most people... Joe Weinstein

It depends on whether the funds hedge currency risk and how much exposure the fund's investments have to the dollar. Some mutual funds will buy or sell currency futures to remove currency risk from the portfolio, leaving only the risk of the stock investments. Others will not. You need to read the fund prospectus to find out.

Often non-US companies will have some exposure to the dollar. On the other hand, many US companies have significant overseas operations that would benefit from a dollar decline.

One way of hedging yourself against dollar decline is an unhedged bond fund such as PIMCO Foreign Bond (Unhedged) A PFUAX. There are probably others.

-- Doug

What would happen to you should there be a "sudden and dramatic drop" in the value of the US dollar? Would your purchasing power be dramatically lower? Would you lose your job? Would your investments be negatively affected?

What I am asking is, what are you trying to protect against?

well, I was hoping to *not* retire in the usa. that said, if milk and bread would cost a wheelbarrowload of dollar bills (inflation), foreign currency (or so went the argument) would potentially shield against that scenario

It depends on how far in the future this non-US retirement is, and where is it going to be.

Investing in U.S. non-financial assets should protect you from a drop in the value of the dollar. I am not sure about overseas funds since a drop in the dollar will drastically reduce exports to the US.

-- Ron

Funds that invest primary in international bonds and stocks will give you currency protection. They hold assets that are bought with foreign currencies and are redeemed in those currencies. Hence, the return number posted will include the currency fluctuations even though investment companies might show a dollar value.

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IMHO, I would think gold (the hard stuff, not the funds) would be a good hedge against inflation. I'm my opinion, the movement of the price of gold is rarely a thing to use as an investment, but as a hedge against inflation, it looks pretty good. As the dollar devaluates, or the euro, or the yen, or whatever, the number of (put currency of choice here) that you can get for an ounce of gold will go up. B

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- gold and gold shares (up to 5% of portfolio) a traditional defence against inflation but very volatile and with a mixed long term track record (periods of exceptional performance and *long* periods of poor performance)

- Everbank runs foreign currency bank accounts

- an ETF like IOO, which owns shares in the world's 100 largest companies. As all of these companies are global, there is a degree of 'natural hedging' against exchange rate movements, and against inflation (as inflation rises, the sales of these companies also rise)

- any international mutual fund which does *not* hedge currency movements.

FWIW the US dollar is very undervalued against the Euro and the Pound, on a purchasing power parity basis. The Yen (and the renimbi) are the currencies which look very much 'too cheap' against the dollar, and may well rise.

On 2 May, 05:22, Ron Peterson wrote: hould protect you from a drop

Whilst a fall in the dollar would be bad for many exporters, many companies have operations in the US, which protect them to an extent (they lose on the profits translation, but they are no less competitive) .

And although the US is a very big economy, and the world's largest exporter (and importer) it is 1/4 of the world economy. The rest of the world counts too, in corporate earnings terms.

PS it's a fair bet prices will double every 30 years or so in the US. The 1970s was an aberation (where they doubled in that decade) and so too was (we hope) the 1930s (when they ended the decade lower than when they started). There are some powerful disinflationary forces in the global economy (basically telecommunications means companies can move service jobs to low wage economies, and cheap transport means companies can manufacture in cheaper and cheaper locations) which may push inflation down below that 2-2.5% pa figure.

Gold to some extent protects against that (or it used to). But the cost of services (like health care) tends to rise much faster than the price of goods (consider the computer you can buy now with $1000, against the computer you could buy in 1980 with $1000). Since as you get older, one tends to consume more services (like health care, and college tuition) and relatively less goods, this is a problem.

Property is something of a hedge against that (rents tend to rise with inflation over the long run) and so are stocks (albeit not a perfect one). Timber (believe it or not) has been a fantastic hedge against inflation, long run.

Take some of you money and invest in some kind of tourism businesses in the US. As the dollar drops, US tourism becomes a more affordable destination for all of those Europeans who have so much vacation time!

Vin - Crash Test Videos, Automotive Recall lists, and Technical Service Bulletins (TSB) at:

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