Investment Tips for A Weak Dollar

Right now the dollar is experiencing a decline, and it’s at its weakest point in 2017 currently. Of course, the dollar is still the primary instrument used for global trade, and that’s probably not going to change, but there is still the necessity for investors to take the weakening dollar into account in their own strategies.

Just as you might watch the stock market seasonality chart or look at the underlying strength or weakness of certain businesses, it’s important to keep an eye on the dollar. A weakening dollar doesn’t necessarily mean investors should panic, but they might need to tweak their strategies somewhat.

The following are some general things to keep in mind when the dollar is down, and you’re eyeing your portfolio.

Foreign Exposure

Many typical U.S. investors tend to have a lot of domestic and large cap securities exposure, but minimal foreign exposure. When the dollar is weak, it’s a good idea to think about bringing some foreign options into the mix as well.  In addition to just looking at foreign opportunities, you might also think about small cap securities.

For investors who adhere to Modern Portfolio Theory, they might also be following this concept since it’s recommended to have a 50/50 mix of U.S. and foreign securities in a portfolio. It’s important to think about having some element of foreign and small cap exposure even when the dollar is strong to take advantage of different opportunities.

Precious Metals

There’s never a surefire or guaranteed route to take when it comes to investing in anything, but for some people, the answer to a declining dollar is to put money into precious metals, and more specifically, gold.

Generally, if the dollar drops, gold goes up and in the event of any type of financial crisis gold tends to do well and be considered a safe haven. In addition to gold, some investors might also turn to other physical commodities during periods of a weakening dollar.

Don’t Count Out Domestic Corporations

When the dollar is down, it seems like everyone wants to run for the hills regarding getting out of investments in American corporations, but that’s not always best. Sometimes it’s better to look at a down dollar as a cheap buying opportunity when everyone else is doing the opposite.

Just try to be prepared and keep your eyes and ears on indicators that could let you know the dollar may be poised to fall further. One thing that a lot of investors are looking at right now is the potential crisis that could come from a lack of agreement on once again raising the debt ceiling. There might also be more dips in the dollar because of the U.S. trade deficit, personal debt of the people in the U.S. and the strength of markets like China.

If you can understand how these forces affect the dollar and you can know how to watch for key indicators it better prepares you to be proactive and make the right decisions.