Protecting your investments from a weak dollar

From 2003 - 2005, the U.S. dollar has fallen against a number of major currencies, causing some investors to worry about their investments. If this is a concern of yours, there are ways to help protect your portfolio.

First, you might consider avoiding investments in companies that are affected significantly by a falling dollar - namely, companies that buy products overseas. When the dollar declines in value against other currencies, imports (be they finished goods or raw materials) are tend to be more expensive. That's because U.S. companies buy goods in a foreign currency that's rising relative to the dollar, so they might have to pay more to obtain those goods than they did previously. That could mean lower profits.

Another option is to invest in companies that can benefit from the falling dollar. For example, a falling dollar tends to make U.S. exports less expensive, because American exporters sell their goods in foreign countries and are paid in a foreign currency that is now rising relative to the US dollar. This means that they can sometimes charge less for their goods and still make a profit, or charge the same and earn more.

You could also invest in companies whose profits tend to be less affected by the fluctuations in the U.S. dollar. Some of these companies operate solely in domestic markets. Others have huge operations in many countries and a variety of currencies, but have entire departments dedicated to managing currency fluctuations.

Often, however, the falling dollar is perceived as a contributing factor to a decline in equity markets. Some companies that are hurt by the falling dollar might raise prices on their final products to offset the increase in their costs. As a result, consumers might pay higher prices for goods. This can put a damper on consumer confidence and spending, which could have a detrimental effect on stocks in general.

I always advise people to consult with their own qualified legal, tax, and financial advisor prior to making any financial decisions.

Of course, not all of the options mentioned in this article are right for all investors.

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