MONEY 29 - CURRENCIES

THIS IS MY 29^TH POST ON UNDERSTANDING MONEY TOOLS

Money! Money! Money!  Let’s talk briefly about another type of investment, world currencies. 

To date, and recap a bit, we have discussed the economy…..bonds could go down in market value if interest rates go up, inflation down the road is inevitable.  The US is printing money much of it labeled in terms of quantitative easings (QE1, QE2 and now QE3). This money is not ending up benefiting the middle class where it is needed, but instead the big banks and big business. If you don’t need the money, you can get the money!  A country cannot print money as we are doing without consequential affect down the road. The dollar loses value, we pay our debt back in cheaper dollars, etc. Inflation way down the line.  The middle class disappearing. Our country cannot prosper with the trade imbalance it currently has.  Our money leaving the country to China for goods and the Middle East to pay for oil.

Over the past years we have transferred private wealth to the top 1% of people in this country, and when our banking industry was collapsing in the summer of 2008 it was the middle class and tax payers that picked up the tab. This left the middle class with fewer dollars to be able to spend, thus current gross domestic product (GDP) is running less than 2%, and closer to 1.7%.  Yes, our unemployment rolls look better and under 8% right now, but many of the jobs are in the lower paying service jobs. A country cannot grow on service type jobs, it needs to produce real products for it’s own country and to export. Companies are doing better, but robotics is the future, and that has little room for hiring more people at a higher wage level.

Not a pretty picture.

Back on track, let’s talk alternative investment, world currencies.  This might be a nice diversification to your portfolio. You can convert the dollar into, or buy foreign currency.  Unless you are very sophisticated, the recommended way to do this is through mutual index funds specializing in world currencies. As with other mutual fund investments, look at the company, the track record over years, the management fees (expense ratio), and total assets under management.  The largest aren’t necessarily the best. There are several good open-ended funds, such as Lord Abbett (returning about 7%) and Pimco (returning about 5%).  The better ones are running an average of 3-7% annual returns.  As with all returns, the future returns may not be indicative of past/historical returns!

Although you should look at the currencies within a portfolio, a good manager is the person you need to trust.  I’ve always liked Norway’s Krone because of the North Sea oil, and the Swiss Franc (currency backed by gold until recently). Both these countries have little or no debt.  Other countries of growth in recent years have been China, Korea, India, and Brazil.