NEW YORK – Whether they build savings by squirreling away money in mutual funds or mattresses, a wide range of investors face a common enemy: a weakening dollar.
Conscientious investors often rightly pride themselves on saving adequate amounts and diversifying their holdings to help guard against a slumping economy. But even well-balanced holdings that primarily exist in dollars could suffer if the currency were to suffer a sustained decline.
Weakness in the dollar, which recently sank to a low against the euro and a multi-decade low against the British pound, has unnerved some investors and stirred interest in mutual funds and other investments that concentrate on companies outside the United States or even invest directly in foreign currencies.
While the declining dollar isn’t reason for panic, many observers say, it should raise questions among U.S. investors about whether their holdings are properly diversified.
“U.S. investors are relatively late to international investing,” said Martin Jansen, senior portfolio manager at ING Investment Management in New York. He said that while U.S. investors are increasingly seeing reasons for adding to their international holdings, they often give little thought to the dollar.
But simply investing in companies that operate in both the United States and abroad might not offer adequate protection, Jansen said.
“If you’re buying big-cap multinational stocks, many of which have big U.S. exposure, you’re not getting as much diversity as you think,” he said, noting that both Texas-based Exxon Mobil Corp. and U.K.-based BP PLC each depend heavily on the U.S. market for their sales. It can matter little, he said, where a company is based.
“The better opportunities at this point would lie in foreign stocks that are more tied to domestic economies outside the U.S.,” Jansen said, adding that U.S. investors have grown too complacent about the risks to the dollar, long the world’s sole reserve currency.
The dollar’s position as the go-to currency for foreign governments and other investors is facing challenges from the growing stature of other major currencies. Interest in other currencies by big foreign buyers could undermine the strength of the dollar.
A weaker dollar can bring benefits for U.S. investors, however. The profits of U.S. exporters or companies that draw sales from overseas can see sizable bumps as it becomes cheaper for foreign buyers to purchase U.S. products. Profits generated overseas by U.S. companies can give a boost to earnings when they’re converted back to dollars.
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