As a financial advisor, I’m often asked how to take best advantage of a strong dollar.
A lot depends on whether you are looking at the short or long term.
Short-term ideas to get more for your dollar
If you are looking at short-term ways to take advantage of a strong dollar, consider vacationing in Israel or Europe as opposed to America, as your dollar will stretch there. You can get more foreign products for the same $1 than you can get in America.
Other ‘bargains’ may be had with buying non-U.S. securities, since your strong dollars will allow you to buy more shares in non-dollar denominated positions than before. If the currency risk of this option scares you off, and if you are interested in investing in American companies, only invest in those that sell domestically, as a strong dollar usually hurts exporters. In any case, though, if you want to buy individual stocks, be sure to review it with a licensed investment professional first.
Interested in property? Low interest rates surrounding a strong dollar can create more favorable mortgage conditions. Similarly, if you have any debts in another currency, pay them off in dollars because while the dollar is strong the payments are easier to make. At the same time, beware of purchasing global commodities priced in dollars because these become more expensive when the dollar is strong.
A long-term outlook
In the long term, a strong dollar causes slower growth in the U.S. economy, so invest abroad. Buying foreign stocks with a strong dollar means that you will get them at a lower price. Try investing in companies that export to the United States, but avoid countries that have a high level of debt in dollars as they will be hit hard by the strong dollar.
The bottom line
Focus on the strengths/weaknesses of a particular investment rather than on whatever currency it is in. Though currency fluctuations can affect your ultimate return, a poor investment in a good currency is still a bad idea. Most importantly, don’t speculate in currencies unless you are prepared for the risks of currency trading.
Consult with your financial advisor for help formulating your own short- and long-term goals, and for advice on what currency to invest in.
For furthure reading, click here to learn How to Manage a Multi-Currency Lifestyle.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published January 25, 2016.