Exchange Rate Worries: Coping with a Weak Dollar

>> It may not be the collapse of the century but the dollar sure has taken a beating recently. The greenback has sunk about 12% against an array of global currency since the beginning of the year and all things considered it's likely to just get worse. Now anything can happen in the short run. The sentiment about the dollar is so negative that any slight reversal in opinion could cause the dollar to rebound for awhile but don't be afraid to take a hint either. If all your money is in investments tied to the dollar now is definitely the time to gradually start diversifying into investments that can rise if the dollar falls, here's why. The US share of world economy will shrink. Now that's not my opinion, that's simple arithmetic. But what it means is that demand for the dollar will fall relative to other currencies. Second the world will be flooded with dollars as the fed and congress continue to try to goose the economy. Too many dollars plus too little demand equals a lower price. Again simple math. Third to write the global trade imbalance the US will eventually will have to import less and the rest of the world will have to import more. If that's the goal a weaker dollar is going to look awfully convenient to policy makers. Now the best hedge against a weak dollar is to move some of your money into international investments. Don't do it all at once just in case the dollar bounces. Instead do it in installments over at least 6 months. The standard advice is to have at least 20% of your stock portfolio in international mutual funds. Anything less is a bet that the dollar has the best prospects of international currencies. Now not to make too much of the recent past but is that a call you really want to make?

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