This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Diversify Your Cash With New Currency ETFs

One of the first elements of portfolio construction is the allocation of capital between stocks, bonds and cash. I believe the cash part of that equation is about to undergo some serious evolution in the coming weeks, thanks to some innovations from the folks at Rydex Investments.

Last December, Rydex listed the Euro Currency Trust (FXE). Each share of the Euro Currency Trust equals 100 euros. As early as next week, Rydex will list six more currency ETFs, covering the British pound, Australian dollar, Canadian dollar (the Loonie), Mexican peso, Swedish krona and Swiss franc.

Accessing the foreign exchange market has been difficult and imprecise for individual investors, but these new ETFs make it much easier.

There are many reasons the dollar could weaken over the next few years: The U.S. has large and growing current account and budget deficits; there could be less demand for U.S. dollars as various countries consider diversifying their currency reserves; and there is the possibility that certain commodities could trade in euros as well as in U.S. dollars.

These concerns guarantee nothing about the future direction of the dollar, but they do suggest a weaker dollar. A weak dollar is easily hedged in an equity portfolio with foreign stocks and in a bond portfolio with foreign bonds (more like a foreign bond fund), but what about the cash portion of a diversified portfolio?

If you are willing to put a portion of your equity portfolio in foreign stocks, why not put a portion of your cash in foreign currencies? That's where I believe the new currency ETFs can come into play.

If you have never thought about investing in currencies, your initial reaction might be that they are too risky. But like any investment product, currencies can be risky or conservative; it depends on how they are used.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FXE $107.80 0.71%
AAPL $130.98 -1.30%
FB $81.25 -0.81%
GOOG $551.51 -0.70%
TSLA $233.28 0.75%

Markets

DOW 18,003.64 -34.33 -0.19%
S&P 500 2,103.62 -5.30 -0.25%
NASDAQ 5,040.0650 -20.1810 -0.40%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs