Month: December 2009

The decline of the greenback has captured the attention of newscasters around the globe.

Its effect on the economy is a mix of positives and negatives.

If you’re an investor, though, there are a number of ways to potentially profit from the falling dollar – if you’re up to speed on what’s out there.

Following are a few things you should consider:

Commodities

Commodities are hard assets that tend to hold their value over a period of time. Gold is a commodity considered by many to be a safe haven in times of currency devaluation. You can purchase commodity- and gold-related securities through mutual funds and exchange-traded funds (ETFs).

Domestic Large-Cap Stocks

Because large companies often generate substantial revenue overseas, they have income in other currencies that can be converted into a greater number of dollars. Many large companies have departments dedicated to currency management.

Foreign Stocks and Bonds

When the dollar falls, prices of securities denominated in other currencies tend to rise. Adding such securities to your portfolio can help cushion it against a drop in the dollar.

Currencies

Investing in the currency you believe will show the greatest strength against the dollar is a way to profit from a falling dollar. You can use this strategy by investing in currency-focused ETFs.

You might have heard of the so-called slow food movement.

It’s a strategy that encourages consumers to take the time to cook meals at home.

But the slow food movement has also spurred a new concept.

It’s called the slow money investing strategy.

The premise of the ‘slow money’ strategy is that investors should consider putting some of their assets into local businesses.

The belief behind the strategy is that consumers need to really rethink how they look at the growth of their investments.

Instead of measuring that growth by the flashing numbers on a stock ticker, it should be likened to a slow ripening.

Much of the slow money investing strategy focuses on investing in local farms.

An example is farmer Martin Ping of New York.

He lets customers invest in certain projects, such as a cheese processing plant.

In exchange, customers can expect a return of around 3%.

They also get a source of fresh cheese, not to mention the good feeling that comes from knowing they’re helping a local business.

Despite this idealism, there’s plenty to be wary of when it comes to the slow money investing strategy.

Spending money to buy food at a farmers’ market is one thing, but putting your retirement money into a cheese processing plant is another.

Most investors don’t have the skills, time or interest level necessary to evaluate the soundness of a local business.

As a result, regional funds have been created in many communities to broker the interaction between investors and local businesses.

However, it’s still advisable to be wary of such investments.

High-yield bonds are a potential option for a retiree’s portfolio.

They have the potential to generate solid income.

It’s also important to note, however, that high-yield bonds doesn’t come with risks.

High-yield bonds are also referred to as junk bonds.

That’s because they’re rated below investment grade, or “junk” in Wall Street jargon.

A bond receives a below-investment-grade rating because the company that issued the bond is believed to have a higher chance of defaulting on its obligation to make timely interest and principal payments, thus resulting in more risk.

But even if the company doesn’t default, the prices of high-yield bonds can be volatile because the fact that a default could occur affects the price that investors are willing to pay for such bonds.

So how do you determine if high-yield bonds are suitable for you?

You need to look at more than the income potential.

Since it’s the combination of the income generated by the bond and any changes in the market value of the bond that determines the true return on your investment, you should consider “total return,”, a figure that combines both of these important factors.

If you look at the total return figure, you’ll soon see that in 2008, high-yield bonds took quite the pummeling.

The Credit Suisse High Yield Index lost 26.2% that year.

However, the index returned 37.43% between the beginning of 2009 and Aug. 31.

These swings show that high-yield bonds can fluctuate significantly.

In general, high-yield bonds can play a part in the portfolios of suitable retirees who understand what they’re getting into – but it should probably be a minor part.

With the stock market near record volatility levels, many investors have turned to physical gold, referred to as bullion.

But is it right for your investment portfolio?

Bullion is acquired in small bars or coins, and investors seem to be enamored with the shiny metal.

Bullion purchases by individuals nearly doubled last year, to 862 metric tons.

In fact, the U.S. Mint, the federal agency that manufactures gold coins for the nation, has had to step up its production this year, with coin sales through June just shy of the 794,000 sold in all of 2008.

But many financial advisers are wary of owning bullion. Why?

First, safekeeping is a risk.

Second, bullion is hard to use.

If the world falls into chaos, you can’t easily chip off a piece of your gold bar to buy, say, milk.

Third, gold can rise and fall in value like any other investment.

Finally, unlike stocks and bonds, gold pays no interest or dividends.

Instead of buying bullion, some investors might want to consider putting around 10% of their portfolios into gold-related investments.

These might include mutual funds that invest in gold-mining stocks or exchange-traded funds that invest in physical gold.

In the end, the decision must be based on your individual circumstances.