Avoid making negative or unhelpful posts, and instead focus on providing constructive feedback and ideas that can help to move the discussion forward.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 1
Is there a simple way to diversify/hedge against the USD for a US based investor with all assets (stocks/cash) denominated in USD?
Like maybe a basket of currencies ETF?
No. of Recommendations: 2
I use moneycorp.com to exchange currencies. Its not brilliant but serves my purpose.
Fidelity lets you buy currencies in a brokerage.
I choose my currencies based on my needs as well as "hedging" a little. in Dollar, Pound sterning, and euros.
some discussion in last couple of days on this on NON US stocks page, refer you and your question there.
good luck.
No. of Recommendations: 4
Interactive broker has world-wide currency trading with very low spread and commission. It's also very easy to trade other countries' stocks if you are interested.
No. of Recommendations: 1
If all your liabilities and expenses are in USD then I don't see a need to hedge USD exposure.
The "only" caveat is if for some reason the full faith and credit of the US would somehow start to be eroded. Given the past few months, anything's possible I suppose.
No. of Recommendations: 6
"If all your liabilities and expenses are in USD then I don't see a need to hedge USD exposure."
Possibly the word "hedge" is misused in this case. The value of any specific currency can be looked at in (at least) two ways:
The domeestic value is related to the purchasing power of a fistfull of local currency. This is dramaticly affected by a country's rate of inflation and, to the extent imports are being bought, the sum of foreign exchangee rates, transport costs, tariffs, VAT, etc. affects their price.
The second is its relative value compared to other currencies on the foreign exchange market. It is sometimes difficult to acertain whether a currency is going up or others are going down. An example was during the "Great Recession", both gold and the Ustralian Dollar rose compared to the US dollar, but for a considerable period of time, gold was flat if you were looking at it from that standpoint of an Austrlian. The "value" of a currency compared to others involves its presumed stability, the interest rate paid to those holding it, etc.
A strtegy which I have used for decades is to purchase currencies which I feel offer the type of diversity I am looking for and then use them to purchase equities (generally large-cap multi-nationals that I am familiar with) on the foreign exchange of that currency (generally reinvesting the dividends).
Incidently, I use Interactive Brokers for this sort of thing.
Jeff
No. of Recommendations: 1
Is there a simple way to diversify/hedge against the USD for a US based investor with all assets (stocks/cash) denominated in USD?
Like maybe a basket of currencies ETF?
BNDX, basket of bonds, not currencies, and seven years duration, so not short-term. Still, if other currencies go up, your USD interest will automatically go up.
I looked at buying currencies through my bank(s) and the Wise app, but the bid/ask spreads are really wide.
Haven't tried IBKR. Should I?
I already have accounts with Fidelity, Schwab, Vanguard, and RobinHood plus commercial banks. A bit reluctant to add one more but what you gonna do.
No. of Recommendations: 1
There are two ETFs, UUP and UDN, which are respectively bullish and bearish bets on the USD (based on US Treasury futures). I am neither recommending or not recommending them. I simply note that I've come across them recently.
https://www.etf.com/UUP
No. of Recommendations: 2
I use Interactive Brokers while continually cursing them. (I also use Vanguard and Fidelity as well as a handful of banks - each for completely different tasks). My beef against IBKR is that their professional trading interface is very complicated, much of their data is subscription-based and their telephone support is virtually non-existent, so issues can take time to solve. It is also a bit complex to actually open an account (actually required two - one managing the other).
That said, they are the least expensive way to "obtain" foreign currency in order to purchase stock on foreign exchanges (while there is, of course a buy/sell spread, their commission is minimal). That said, the currency is still a book notation at an American company. If it is foreign cash you desire/require, you would have to wire the funds (I think it's free) to the bank of your choice (in the country of your choice). If you are an American citizen who has decided to open foreign bank accounts, it is important to remember to file assorted US government forms to keep them apprised and to pay taxes on any income.
Jeff
No. of Recommendations: 18
Is there a simple way to diversify/hedge against the USD for a US based investor with all assets (stocks/cash) denominated in USD?
Like maybe a basket of currencies ETF
The simplest answer, as others noted, is that if you have a cash pile, convert that cash to other currencies. This is particularly easy at Interactive Brokers, and you earn decent interest. You do better, though it's more of a nuisance, to take the next step and use that currency to buy (say) short term bonds from that country. You'll get another half percent a year in yield, and your counterparty is a sovereign country instead of IB.
But I think the question warrants stepping back a bit: WHY do you want to do this?
If your concern is like mine (no longer wanting to be a big investor in the US as it is now a geopolitical adversary of the countries to which I have ties, i.e. "the west"), or because you fear a financial system meltdown (let's hope the sell-off in Treasuries is really just unwinding of the carry trade, as the alternative is spooky), then follow the advice in the thread. If you want "out" there are ways to do it.
But if the reason that you want do to this is to avoid losses related to a falling US dollar, i.e. as a profit motive for the next months or couple of years, that may or may not be a good plan. Other things being equal (they never are), tariffs drive a currency up, not down. Right now the tariffs are announcements, not day to day reality affecting a lot of purchases. We may not be sure about where the levels end up, but it seems clear that many months from now there will be a whole lot of US tariffs. When that starts affecting the big money flows, there will be a new big relative pressure pushing the US dollar upwards.
The reason for the upward pressure is pretty classical. For an American to buy a bottle of Barolo, he or she has to buy some Euros to pay for it. (it doesn't matter if there are middlemen, or if the invoice is in dollars, or if the payment is in dollars--if/when the winemaker gets US dollars, they'll just immediately sell them, so the end result is the same). With tariffs, there will be higher sticker prices and lower sales of Barolo in the US. Tariffs are designed to reduce the volume of imports, and they generally work in this sense. This means fewer people in any given week having to buy euros. This reduces the relative demand for euros and increases the relative demand for dollars, so the exchange rate of the US dollar rises.
(note, this is why tariffs are likely to worsen the US trade deficit--the dollar rises and US exports become more expensive, falling more than imports. Further, US-based industries face less competition and become less efficient, worsening their value proposition further. That's the usual result when a country resorts to high tariffs)
I am about as uncertain about the near term global economic future as everybody else, but if forced to make a call, I'd expect the trade weighted US dollar to be higher, not lower, 6-12 months from now. So if your reasoning is to avoid further US dollar falls over the next 6-12-18 months, you may (?) want to consider other investment concerns.
For posterity, the US dollar index is at 99.76.
A few side comments:
Someone in the thread mentions that if all your living expenses are in US dollars, the level of the dollar isn't important. This isn't true. If the general purpose purchasing power of a greenback goes down, the holder is poorer no matter where they live. The only difference is the time lag. Your real income has fallen, and your money immediately buys less of anything that can possibly be traded. For the things that can't be traded, after a lag it generally shows up as a loss from inflation--all those local suppliers have imported inputs that are more expensive, so they have to raise their prices sooner or later. The beneficiaries are those who owe more in US dollars than they have assets denominated in US dollars.
Everybody who has a non-zero amount of cash, whether savings or debts, is implicitly and unavoidably making a currency wager. It is not possible to abstain.
If you're thinking about investing in companies as your way of diversification, which makes the most sense if your investment horizon is longer, remember that the location of incorporation, or head office, or stock market listing don't matter, nor does the currency used to buy the stock or in which its price is quoted. What matters is where the company gets its revenue. (and to a smaller extent, where its currency-denomination-fixed expense profile is, mostly salaries). If you want to be protected from a falling dollar risk, follow the revenues: you are more international with a US firm bought with dollars that is almost all export oriented than with a London-listed firm bought in pounds that has mostly US revenue.
Jim
No. of Recommendations: 1
BNDX, basket of bonds, not currencies, and seven years duration, so not short-term. Still, if other currencies go up, your USD interest will automatically go up.
BNDX is currency hedged, so you are only exposed to the interest rate/credit risk of international bonds. You do not get international currency exposure.
No. of Recommendations: 0
BNDX is currency hedged, so you are only exposed to the interest rate/credit risk of international bonds. You do not get international currency exposure.
You're right. IAGG too.
