Money - 311.
(photo credit: REUTERS)
Remember the US Dollar? Pundits across the financial spectrum were writing off
the greenback due to the huge Obama deficits, the continued printing of money,
rising commodity prices and that the rest of the world was catching up to
Well, what a difference eight months makes.
Throw in a
European debt crisis and all of the sudden the greenback is once again king
currency. The dollar has moved up by 14 percent against the euro, 8% against the
Australian dollar (though it was 15% up a few months ago), and even against our
beloved Israeli shekel it has rocketed up by 13% in the last six
Does this upswing portend a bigger trend, or is the move destined
to be short-lived? There is no real way to answer that question.
mother used to be fond of saying that “prophecy was given to fools.” Trying to
predict currency behavior over the short term is near impossible.
can say is that many of the reasons that analysts were anti-dollar still hold
true today. If the world can get past the European debacle, and some normalcy
and calm return to the markets, it wouldn’t be a surprise to see another round
of dollar weakness.What should we do?
For investors who need some more
income to meet their retirement goals, or who are looking to diversify the
fixed-income part of their portfolios, it may be time to start thinking global.
The fact of the matter is that interest rates in the US are at historically low
levels, and the Federal Reserve has come out and said they are in no hurry to
For fixed-income investors, the 1%-2.5% that bonds are
yielding doesn’t cut it. To generate much-needed income, investors have turned
to high-yielding, dividend-paying stocks that, despite their current popularity,
are ultimately stocks and can get crushed like any other stock (e.g., Citigroup,
General Electric et al.) Foreign-currency bonds
As such, investors may want to
take advantage of cheap currencies and higher yields. If a 2% return is not
enough to meet your needs, take a look at bonds that trade in foreign currency.
While it used to be difficult to buy these bonds, nowadays most brokerage firms
have the ability to purchase bonds in various currencies.
For example, a
highly rated (AAA) bond in Brazilian reals can yield over 8%. A similar bond in
Australian dollars will be over 4.5%. What makes these bonds even more
attractive is that the currencies have been weak of late against the US dollar;
only do you get the high interest rate, you also have the potential to profit
from the appreciation in the currency if some normalcy returns to the
If you can get a 5%-8% interest rate and a stable currency, you
are way ahead of the game and will be able to meet your retirement goals with
even less than $1 million in the bank.
For investors who want this
exposure but are gun-shy about actually buying foreign-currency bonds, there are
plenty of ETFs out there that can do the job. The iShares S&P/Citigroup
International Treasury Bond Fund or the iShares JPMorgan USD Emerging Markets
Bond Fund are both worth looking at.Global bond funds
For investors who
would rather not speculate in specific currencies, but would prefer professional
management as opposed to the more-passive ETFs, one can invest in a global or an
emerging market bond fund. This is a managed portfolio of bonds that are
denominated in multiple currencies. The advantage of this route is that there is
a paid manager who is an expert in currencies who manages the portfolio for you.
In addition, since it’s a bond portfolio, you also get monthly interest
payments. However, be aware that a fund like this can also lose money and is not
It is important to note that past performance is no
indication of future results, and with both of these options, if the US dollar
gets stronger against the world’s major currencies, you can end up losing money.
I am not saying to put all of your net worth in these types of currencies, but
some exposure can potentially make a big difference in your
Speak to your financial adviser to see if you can enhance
retirement income by incorporating foreign bonds into your
[email protected] Aaron Katsman is a licensed
financial adviser in Israel and the United States who helps people with US