The Ups and Downs of Currency Funds

There needs to be a bit of context to currency-investment idea. The rally in equities that has been under way since March has been fueled, in part, by a 15% decline in the U.S. dollar index. That same index rallied 22% during the second half of last year as stocks were imploding and rallied again during the first quarter of this year as stocks dropped again. Loading up on foreign currencies after a big drop in the dollar could be the epitome of buying high, but slowly wading in with an eye to the long term could serve as effective diversification. Even if you're in the dollar-going-to-zero camp, it's crucial to realize that it wouldn't ever be a straight line, and, when the dollar does rally, counter-trend or otherwise, currency ETFs will go down meaningfully.

>To order reprints of this article, click here: Reprints