With the U.S. dollar trading at a 12-year high against the euro and an eight-year high against the Japanese yen, the economy appears to be much healthier in the United States than in other parts of the world. Great news for Americans planning a trip to Europe or Tokyo, but not necessarily good news for U.S. investors concerned over the strong dollar’s potential affect on their portfolios. —
From a global perspective, the dollar’s value is determined by its clout in relation to other currencies. In 2011, the dollar had a conversion rate of only 75 cents to the euro. Today, the two currencies are almost equal in value. This recent surge appears to be at least partly due to a strengthening American economy, and to expectations that interest rates will remain higher in the U.S. than in many other countries.
Regardless of the reasons, the dollar’s upswing may be impacting a number of American’s portfolios, as a strengthening dollar generally lowers international investment returns, as the stock’s value in euros and other currencies has declined. Some U.S. companies with a global presence may experience a certain amount of depreciation in stock value too, as a result of lower earnings from their overseas operations.
Although a strong dollar may seem like bad news for Wall Street, it is not necessarily the case; in the past, markets have performed well with both a strong and a weak dollar at varying times. But a strong dollar can help foreign companies compete by providing an earnings boost from U.S. sales, further enhancing the value of foreign investments.
According to certified financial planner professional Jason Mosher, a strong dollar can have a cooling effect on U.S. equities.
“A stronger U.S. dollar can translate to weaker profits for some large, multinational U.S. companies and negatively affect the bottom line,” Mosher says. “This is where investors should turn to their investment advisor for help deciding what action, if any, should be taken to help reduce the potential for any negative impact.”
One strategy investors take to protect their money is investing in smaller companies that are less dependent on international markets for growth.
Strategies for diversification that gain exposure to foreign economies and markets can also help investors reduce the potential negative impact that a strong U.S. dollar may have on their portfolio. Enlisting the help of an experienced investment advisor can be critical when it comes to making the best decisions for protecting one’s holdings.
Although diversification cannot guarantee protection against loss, it can help weaken the potential impact of volatility on a portfolio. International investing comes with additional risks beyond currency fluctuations as well, including any political and economic instability in foreign countries.
A strong dollar has a way of raising adrenaline levels in many investors who worry about the impact rapidly fluctuating currency exchange rates will have on their financial outlook, but the reality is that no one can predict how long a strong dollar will last. The best thing investors can do to protect their money is to establish a solid, long-term investment strategy in place and stick with it.
Management, Inc., both at 11525 Park Woods Circle, Alpharetta GA, 30005, (678) 356-1100. Sheppard Mosher is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.
The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. It is suggested that individuals consult an accountant, tax, or legal advisor with regard to their individual situation.
Name: Jason Mosher, CFP® Certified Financial Planner Professional
Email: Send Email
Organization: Sheppard Mosher Independent Wealth Management
Phone: (585) 396-0926
Source URL: http://councilofeliteadvisors.com/liftmedia
Release ID: 83780