December 1, 2004 11:53 AM
The Right (and Wrong) Way To Protect Yourself Against The Falling Dollar
Excerpt: Clearly, a lot of foreign funds are garnering a heap of money -- but not all of them will soar if the dollar keeps sinking. In fact, only small-company foreign-stock funds and international-bond funds give you anything close to a pure currency play. And because they hedge their currency exposure, some of these funds may get scant benefit from a falling dollar.
What if the buck doesn't stop here?
Investors are shoveling money into foreign-stock and bond mutual funds, hoping to profit from the tumbling dollar. I fear, however, that many of these folks will be a tad disappointed.
According to the Investment Company Institute in Washington, foreign-bond funds have attracted $3.8 billion from investors so far this year, up 61% from the same stretch in 2003, while foreign-stock funds have pulled in $50.6 billion, a staggering 213% increase.
Clearly, a lot of foreign funds are garnering a heap of money -- but not all of them will soar if the dollar keeps sinking. In fact, only small-company foreign-stock funds and international-bond funds give you anything close to a pure currency play. And because they hedge their currency exposure, some of these funds may get scant benefit from a falling dollar.
Risky business. Lately, there has been a flurry of articles arguing that now that the dollar has fallen steeply, it's time to invest abroad. I am always amused by such belated enthusiasm. Wouldn't it have been smarter to have ventured overseas before the dollar started hitting new lows?
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