Along the same vein of our last article on this subject, we continue to find amusing investment tips in Kiplinger’s:
Page 31 of their February 2010 edition is called:
Make a Buck off a Sagging Dollar – by Andrew Tanzer
This articles states how, since the US Dollar is falling, what alternatives an investor should find in order to make money.
Page 34 of this same edition has:
Don’t Write Off the Dollar Yet – by Jeff Kosnett
And you guessed it, Kosnett is saying that the Dollar is still going to ride strong. His blurb states: “The Dollar continues to account for 65% of the world’s currency reserves.”
Of course, the conclusion to draw here is that Kiplinger’s will provide different points of view, so for investors to look to them for investment advice will not provide definite answers. This is namely because there are no definite answers, just the same various theories recycled over and over. None of which is full proof. We can’t help wondering how much is really gained by reading this type of advice regularly.
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I have to agree with Mr. Schiffres. I found Tanzer’s story not only had a well-developed point of view, but it was filled with actionable advice. Oh, and the expression is “fool proof,” not “full proof,” which, in this context, I find ironic.
For the average US investor (and typical reader of Kiplinger’s), their wealth a future requirements are denominated in dollars. So a decline in the value of the dollar relative to other currencies does not affect the value of the dollar investor’s portfolio. The concomitant effects of inflation and relation of real vs financial assets become more important.
That said, if a dollar investor can place part of her portfolio in assets which will appreciate faster by being denominated in another currency, it makes sense to do so. However, that investor raises the average risk of the portfolio: the foreign share will depend not only on the performance of the company, but also on the relative value of the currency. Most emerging markets are, by definition, more risky than the US stock market – less liquid, with elements of added political risk.
My problem with Tanzer’s article is that it ends with a recommendation to buy gold shares. And her we revert to your previous post about past performance as a predictor of the future. I am wary of advice which says “Buy this, it is 37% more expensive now than it was a year ago.”
Manny,
I do not disagree with Kiplinger’s proposing their point of view, and I certainly do not disagree with your featuring an opposing point of view. We just wanted to show (through this example as well as our previous one) how this seems to be a pattern. In a market that works somewhat efficiently, however, this is to be expected, since featuring just one point of view means you will be mistaken roughly 50% of the time.
Although since Tanzer is listed as ‘Senior Associate Editor’ and Jeffery Kosnett as ‘Senior Editor’ it isn’t glaringly obvious that one represents Kiplinger’s view and one does not.
We certainly understand that any currency analysis will involve more than one currency, and we understand that there are many nuances in any investment strategy. On the other hand we do not think we were oversimplifying the matter since Tanzer himself continuously refers to the “sagging dollar” and recommends methods of investing in commodities, as well as stock and funds with broad international exposure (thereby outlining a broad ‘decrease your exposure to the sagging Dollar’ strategy).
David,
Point well taken regarding “fool proof”. Though it is no excuse, English is my second language, so I do appreciate any constructive criticism.
Senectus,
Very few analyses of foreign denominated funds and foreign currency investments seem to include these inherent risks/fees/etc. Investing in a foreign currency denominated fund automatically increases risk by a higher factor than merely moving to a different domestic fund. If the dollar fluctuates within a year (with respect to various other currencies) it will have very little effect to most US investors, so they must already be somewhat risk-seeking to consider these alternatives. It would be interesting to see more studies in this respect, which might result in a standard “foreign investment marginal fee equation” (or another, catchier name) which must be factored in whenever you move your investments out of your home currency.
Your point regarding Gold investments is exactly what we were pointing out in our last post and we agree heartily.