A couple of days ago, I spoke of how the devalued dollar has caused American merchandise to become priced much more cheaply compared to similar stuff sold in other countries. This led to my sour graping whenever friends and family from abroad came by to visit in order to indulge in shopping marathons. Um yeah, it’s sure nice to be the spectator while everyone is cooing over their amassed loot, all at half price courtesy of the flailing dollar. The tourists buy up a storm while I watch — how exciting is that?
So I’ve blamed the faltering greenback for this situation. When I did so, however, discerning readers pointed out that I was complaining about something that may not necessarily be a bad thing. Well, they were right — it’s not as black and white as it seems.
So the basic question arises: is a weak dollar a good or bad thing?
In my mind, it depends on your perspective. As an American consumer, you may not be all too happy (as I am) about this state of affairs, but if you’re a multi-national conglomerate, you’d be jumping up and down with glee. Here’s a quick rundown of the Pros and Cons of the weak vs strong dollar:
My point of view has probably been a little myopic, but I was merely sharing my views as a consumer who was feeling the pinch of the sliding dollar. Not to mention that there are potential risks that build up as our currency drops even further: a continuously falling dollar can trigger inflation and greater global and trade imbalances that may lead to a recession. But we’re not there yet so I won’t be chicken little just yet.
I also received a few questions about whether we should even care about this, or whether there’s anything we can do to capitalize on these currency conditions. Here is one such question by reader JEM, who like many, are becoming enticed by the recent strong returns of foreign funds aided in part by the weak dollar:
I have a friend who is trying to get us to sell our US stock and only invest in international stocks and mutual funds. What are your thoughts on this?
To answer this question, I’m going to look into the various ways we can work things out to our advantage as both investors and consumers, since changes in our economic condition often supply us with opportunities that we can capitalize on if we’re keen enough to catch on to them. I’m actually taking up these suggestions as a response to our current economic climate.
How To Ride The Weak Dollar
Limit international travels or delay them to a more opportune time.
Our kids are quite young hence they’re at the age when traveling with them can be most “challenging”, especially when you’re dealing with close quarters in crowded planes. It’s therefore a good excuse to resort to day trips and staying within the confines of the nation for now so we don’t feel the effects of foreign exchange rates. We’ll continue to limit our spending to domestic transactions, at least, for the near term.
Invite overseas family and friends over more often.
We have lots of friends and family scattered all over the world who we’d like to keep up with. For now, we’ve asked people to come by and visit as it’s become very affordable for them to do so (while it’s the opposite for us of course). Despite my grumpiness over shopping, we do enjoy keeping tabs with those closest to us and so we have pretty much an open door policy.
Do some research before traveling.
If there’s no keeping you on domestic shores, then there are still good travel deals that abound if you know where to look for them. With some digging around, you may be able to cut down on your travel expenses. Check out our list of best travel sites for great deals.
Raise international holdings and stay in equities.
During the last several years, my international funds have been doing quite well, no doubt aided by the falling dollar. Of course, we don’t know how long this trend will last but it’s good to be aware of the opportunities that present themselves when economic tides shift. Along these lines, here’s my response to the reader question I presented earlier that asked whether one should dump U.S. stocks in favor of foreign funds: my solid answer is NO. If you do this, you’re simply timing the market. The optimal investment strategy is to keep a diversified investment portfolio with representation from various asset classes such as domestic and international equities, bonds and cash. Dropping an asset class from your mix will potentially raise your risk and could cause market-timing blunders. I wouldn’t do it as you can easily get whipsawed by the market, say if U.S. stocks stage a strong comeback while overseas equities stall. If you really want to play the foreign angle, you can simply increase your foreign allocation by some percentage you’re comfortable with. This is what I plan to do myself. As I’ve said before, I intend to raise our foreign holdings from 10% to 20%. (Note that this does not constitute financial advice as I’m no adviser, just a regular jane investor.)
Buy into other currencies.
I’ve become tempted to diversify into foreign currency. This diversification strategy has been in the back of our minds for a while now and we’ve been working to execute this plan. What’s great is that there’s a straightforward way to go ahead and do this, care of EverBank. This sounds like an intriguing idea which more people should look into.
Keep some assets in foreign lands.
This may not apply to everyone but it particularly applies to people like us who have family abroad. If you have any family assets that need to be reunited with you one day, then you automatically have a dollar hedge. You can also extend this idea to “off-shore” type banking schemes, but I’m not so sure how “cool” an idea that really is since I’m not really too familiar with the concept. I only know that such schemes are associated with rich people who want to hide money somewhere else.
Buy American and limit buying of imported goods.
If you can avoid buying imported goods, then you won’t be paying for that currency exchange premium. So until things get cheaper, I may watch what I’m buying… except for that delightful Swiss chocolate.
Again, this may not have as much impact on your everyday living unless you’re an avid globe-trotter or someone fond of foreign imports. But if you’re after making that dollar (what’s left of it) stretch further, then hopefully, these tips could help.
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