Beyond the Greenback

A question for you: How much of your assets are in U.S. dollars?

I'm not talking about assets exclusively in cash, but your investments in the U.S. stock market, money markets, Treasuries or anything else based on the American dollar, such as your house.

My guess is that you are close to 100% fully invested in greenbacks. That would make you not unlike most people on this side of the pond.

And just how diversified do you believe that is?

While most people believe diversification comes through holding different types of investments (such as stocks, bonds and real estate), our trend-following paradigm is a little different.

The Problem

We trend-followers believe sitting solely in U.S. dollars presents an overwhelming disadvantage: There is no way to safeguard against a declining greenback as it erodes the value of our U.S.-denominated assets and our buying power. The same is true for any one currency. Diversification into international markets, then, is key.

Everyone feels the financial pain of high oil prices and rising interest rates, but few are aware of the stealthy destructive power of currency devaluation.

A weak dollar affects everything in our lives, from our mortgages to the prices we pay for goods to the strength of the stock market.

Even if the financial future and inflation remain as tame as they were between 2001 and 2004, an account of $100,000 in 2005 that has been left sitting in cash will have $65,000 in buying power in 2007.

Anything less tame could erode value even more.

Still, the effects of dollar depreciation are somewhat relative.

Changes in dollar value will be much more noticeable to someone living or frequently traveling abroad than to someone who never leaves the U.S.