Currency ETFs With a Solid Base

The good old days of buying blue chips and making 10% a year are over. In fact, if you had bought an S&P 500 index fund and held on to it for 10 years, you would have lost money. So where do you turn now to make a few bucks?

Currency exchange-traded funds (ETFs) allow the little guy to take advantage of the volatile American dollar. The trick is knowing which ones are solid and which ones are built on a house of cards.

Back in the old days, an American could turn in $35 for one ounce of gold under the gold standard. Under the Nixon administration, we were completely removed from this practice. The Federal Reserve could now introduce money at will. This system worked for many decades, until now. Going onto the Federal Reserve's Web site, one will see that M2, the measure of money, has increased at over 6% over the last 10 years. Most folks would give their eye teeth for a 6% return over that time period.

If Country A prints money faster than Country B, Country A's currency will probably depreciate. So how can you profit from this? A handful of currency ETFs, if watched carefully, can recover some of that money you lost last year in the stock market.

The Wisdom Tree Euro ETF (EU - commentary - Cramer's Take) is composed of some of the most solid investments to take advantage of the strong dollar. As of the time of this article, it takes $1.28 in U.S. currency to buy one euro. Last year at one point, it took $1.60 to buy one euro. Why the big drop? Flight to quality. People are moving money back into the U.S. to take advantage of big FDIC guarantees. This ETF actually holds short-term bonds, denominated in euros. However, the European Union is having troubles too. Look at all of the banks getting bailed out.

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At the time of publication, Osborne had no positions in the securities mentioned.

Holmes R. Osborne III is a private money manager, founder of investment newsletter StockRoyalty.com and frequent author of financial columns. He has a degree in finance from the Martin J. Whitman School of Management at Syracuse University and is a CFA charter holder. Osborne is a member of the Pacific Council on International Relations, Malibu Rotary, Business Forum International and was formerly on the board of the L.A. National Association of Business Economists. He spoke this year at the fifth annual Value Investor Conference.