Most working-class Americans have something in common when it comes to investments…
A quick peek at their 401(k)s will likely reveal a mix of stock and bond holdings.
But whether they own more stocks or bonds, most Americans aren’t aware they hold one particular investment. In fact, it’s the single biggest investment in their portfolios.
I’m talking about the U.S. dollar.
Most Americans’ investments, fixed assets, and income are denominated in the currency.
Now, you might think that doesn’t make sense. You might reason that your own currency can’t be an investment.
But put yourself in the shoes of, say, an Australian investor who owns shares of Alphabet (GOOGL) or Apple (AAPL)… or who has invested in 10-year U.S. Treasury notes.
They need to buy U.S. dollars before purchasing any of those assets…
If the U.S. dollar gained against the Australian dollar, the Australian investor would’ve made an extra profit when converting back to their currency.
In this way, the U.S. dollar is an investment to them. It rises and falls against other currencies. And it goes into the final return that they get from the U.S.-based investment.
Again, Americans typically have all their investments and assets denominated in U.S. dollars.
Their entire lives revolve around the U.S. dollar. It’s a part of everything they own and everything they buy.
That’s why it’s difficult for most of us to see the dollar as an investment.
To many folks, it’s simply a currency – the only currency – they use every day. And they think that a dollar today is always going to be a dollar tomorrow.
That’s flawed.
We realize this idea when we travel overseas. If you’ve done that, you’ve likely found out that $100 buys much more in another country than it does at home.
But when the dollar weakens against other currencies, the reverse is true…
We end up spending more dollars abroad than we would on the same things back home.
A weaker dollar also makes everything we own cheaper for folks from other countries to get. And it makes it more expensive for us to buy things from other countries as imports.
I’m bringing all this up today for a simple reason…
The dollar’s value has weakened recently.
We can see that through the U.S. Dollar Index. It measures the value of the dollar against a basket of six other currencies. And it’s down about 4% in less than three months.
It could get worse soon, too. If the Federal Reserve makes good on its all-but-certain interest-rate cuts next week, the dollar will likely lose more ground to other currencies.
That means buying goods made overseas is going to get more expensive for Americans. And the same is true for American businesses – including many U.S.-listed stocks.
In other words, only owning U.S.-based investments exposes you to a different kind of risk.
You might think you’re diversified if you hold a combination of stocks and bonds in your portfolio. But in reality, most investors are often still too exposed to one currency.
As I said last month, a weakening dollar isn’t the end of the world. And this weakness doesn’t mean less opportunity for U.S. investors.
But if everything you own is denominated in U.S. dollars, you might want to look abroad for some extra diversity in your investments.
Put simply, investing in other countries (and currencies) can help offset a falling dollar.
Good investing,
Vic Lederman
P.S. When it comes to your investments, you won’t want to miss what Chaikin Analytics founder Marc Chaikin has to say in his next big market prediction…
On September 19, Marc is going public with a critical warning that he says could save your wealth in the next 90 days. At 8 p.m. Eastern time that evening, he’s going on camera to share all the details about a market event that’s already shaking up U.S. stocks. And he’ll discuss the exact steps to take to position yourself.
Don’t miss this big event – it’s free to attend. We just ask that you RSVP in advance. You can do so right here.
