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Using Currencies to Diversify Your Portfolio

by Axel Merk

Using Currencies To Diversify Your Portfolio Splash image

Axel Merk is the president and chief investment officer of Merk Investments. I spoke with him in recently about investing in currencies.

Charles Rotblut (CR): When someone talks about investing in currencies, what does that actually involve?

Axel Merk (AM): Obviously, everybody has heard of the U.S. dollar, but other countries and regions have their own currencies—say, the euro or the Swiss franc or the Australian dollar or even the Chinese renminbi [yuan]. And if you want to conduct business in that currency, you have to exchange your money; currencies always trade in pairs, and it’s always one currency versus another one.

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Axel Merk is the founder and president of Merk Investments.


Discussion

Steve from Pennsylvania posted over 2 years ago:

Investing in currencies is a zero sum game. There is no internal rate of return here. I would have asked Mr. Merk how he can acheive positive long-term returns in this environment. It seems to me that his long-term stategy is to bet against the US dollar (which may be a good bet) against foreign currencies with stronger fundmentals. Is there more to it than this?


Clyde from Wisconsin posted over 2 years ago:

I've been investing in Australia government bonds for the past 6-7 years. They are rated triple A and pay (based on my current holdings) about a 5% yield. This is on a 5 year maturity. I believe they are safer than US Treasuries and the yield is a bonus. The downside is the interest payments are in Aussie dollars with zero yield until you rollover the bond when it matures. The upside is the Aussie dollar may just appreciate while you are waiting. The cost is 1.5% to convert your US dollars when you buy the bonds and another 1.5% when (if ever) you convert the Aussie dollars back to US dollars. When i first started doing this the Aussie dollar was worth 70 cents US. Now the Aussie is worth $1.04 US.


Mike from Pennsylvania posted about 1 year ago:

The only mutual funds I've found for hard currencies are MERKX and ICPHX, and ICPHX has a front-end load. Is anyone aware of another no-load fund for this besides MERKX?


Samir Desai from Texas posted about 1 year ago:

It is too easy to simplify currency trades as simply driven by supply and demand. Macro economic factors play a huge role in the direction of movement. To bet $ against Yen, I will need to understand the short term and long term macro factors for Yen.
The same is true for every other currency pair. You need to know a lot about the macro environment as well as government policies to bet against/in-favor of any currency.

And it is a zero sum game (just like options).

Good luck gambling on currency.


Richard English from Virginia posted about 1 year ago:

Back in the mid 90's I made some nice money trading futures with the Euro which was gaining on the US $. However in today's frantic trading and constant changing financial environment in the world and US, I think it would be a brave soul who would enter the currency arena now.


Al Connelly from New Jersey posted 7 months ago:

Looking at the performance figures here, and on the web, it looks like staying in cash is a better bet than getting into currencies. And I agree with Mr. English above that the currency arena is a difficult place.


James Hargreaves from Georgia posted 7 months ago:

It would have been interesting to examine whether IRA assets can be moved into "foreign" instruments or currencies such that those assets would be beyond the reach of the US government (in the event that the US government "opts" to seize IRA funds to pay off social security or other debts).

Of course, these seizures would be done in the name of "protecting/helping" those "hapless/helpless" IRS account holders and "fairness".

The idea of the US government "seizing" individual IRA accounts (to pay various US debts) has already been "floated" in Congress by some hard left partisans.

Is there any way the "responsible" individual (who has saved rather than spent their wages and has "larger" IRA balances) can protect themselves (their accounts from seizure) using foreign currency or bond investments (possibly held offshore)?


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