Sunday, April 29, 2007

Weakening Dollar, Ahoi!

Have you guys traveled abroad recently? I am currently on an international business trip, visiting a place that I know very well and in which I have previously spent a great deal of time. With the Dollar depreciating against most major currencies international travel has become much more expensive - our Dollars buy a lot less abroad than they used to.

This is a consequence of the U.S. trade deficit and federal government budget deficit. It is also a consequence of expectations for increasing interest rates in the Euro zone and elsewhere, and of the booming global economy.

The fall in the dollar has been very good for investments denominated in foreign currencies and investments in companies which generate most of their income abroad. For example, Vanguard's Total International Stock Index (NASDAQ: VGTSX) has returned 19.9% in the past year.

While it may be tempting to bet against the dollar, I am sticking to my guns and am not changing my portfolio's exposure to international markets in the near term. In the longer run, I think we need to invest a slightly higher portion of our assets in international stocks, but I will make that change gradually, and without taking into account market fluctuations or my own hunches about where the markets are heading.

1 comment:

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