Everybody likes twofers: two cans of peas for the price of one. Two suits for the price of one. Two tickets to London for the price of one.

I've never seen a twofer offering investors two shares for the price of one. But every once in a while, I do come across another kind of investing twofer. And thanks to the falling U.S. dollar, I think I've found one.

If you buy the right kind of overseas income investments (stocks, bonds or mutual funds), I think you have a good chance of both earning a higher yield than you'd get on comparable U.S. assets, and seeing greater price appreciation than you would in the U.S. markets. Declines in the U.S. dollar translate into higher prices in euros, yen or Australian dollars.

This twofer also comes with less risk than you'd get from a portfolio limited to just U.S. stocks and bonds. That's always valuable, of course, but it will be especially valuable in 2005, a year that, if I'm right, will deliver about the same 8% total return in stocks that investors have seen in 2004, and with the same kind of maddening sector rotations, head fakes, aborted rallies and short-lived but stomach-wrenching scares. (For more on my take on 2005, see last week's column .)

And of course, this twofer offers the prospect of profits even if my read on 2005 is wrong.

Try Something New

This twofer is available to every investor who is willing to learn some new tricks. You'll have to give up your unthinking reliance on U.S. Treasuries and U.S. blue-chip stocks for safety and replace those assets with some relatively unfamiliar assets.

I don't underestimate for a moment how hard it is to get comfortable with a new stock or an unfamiliar asset class. But I think 2005 looks like a year that will reward stretching your mind and learning a new trick or two.

If I'd known then what I know now, it would have been simple to clobber the U.S. stock indices in 2004. If you had put your money into the ( BEGBX) American Century International Bond Fund at the beginning of 2004, you'd be looking at a total return of 9% right now. That's almost 50% better than the total return on the S&P 500. If you had bought Australia and New Zealand Bank ( ANZ) on Jan. 2, 2004, you'd have a 21% total return year to date.

Let's not forget the twofer in investments like these, either. Even if the market prices of these assets hadn't appreciated at all, you would be collecting a 7.19% yield from the American Century International Bond Fund. The dividend yield on the Australian bank, at 5.2%, isn't far behind that.

Unfortunately, we can't yell "do over!" and go back to January 2004. The task for investors is to figure out the logic behind this performance and then apply it to the present and the future.

A Three-Part Story

The first part of the story is the decline of the U.S. dollar vs. currencies such as the euro. As of Nov. 22, the dollar was down 3.6% in 2004 against the euro and 4% against the Australian dollar. That means euro bonds or Aussie stocks are worth 3.6% and 4% more, respectively, when they are translated back into dollars for U.S. investors.

Part two of the story is about the relative interest rates in the U.S. and in specific foreign countries. In the U.S., short-term interest rates have climbed in 2004, as the Federal Reserve has so far raised the fed funds rate to 2%, from 1% before the first rate hike in June 2004.

In contrast, the Reserve Bank of Australia has kept its interest rate steady at 5.25% since its last rate increase in December 2003. The European Central Bank's short-term interest rate now stands at 2%, but expectations -- which do more to set market rates than central-bank announcements -- have changed in 2004. People have gone from a belief that the inflation fighters in Europe were about to raise rates to speculation that they would cut rates to keep economic growth from falling in the face of export competition from U.S. goods made cheaper by the falling dollar. That kind of differential between actual interest rates and expectations also has added to the price appreciation of euro and Australian dollar financial assets.

Part three of the story is purely and simply economic growth. The extraordinary returns from the Australian bank stock mirror the boom in the Australian economy driven by demand for raw materials from China. The economy (gross domestic product) is projected to grow by 3.6% this year, and that has meant lots of demand for loans from businesses seeking to expand and from consumers looking to spend.

But 2005 won't be a simple replay of 2004. For example, don't count on exporting countries such as Australia and Canada to repeat their 2004 track record in economic growth and currency appreciation.

In Australia, for instance, the growth of 2004, coupled with the appreciation of the Australian dollar, has resulted in a surge of imports that has sent the country's trade balance into the red. The strong Australian dollar has priced the country out of some markets. Right now the Reserve Bank of Australia is thinking about raising rates to cut import demand, and National Australia Bank ( NAB) is projecting that the Australian dollar will fall against the U.S. dollar by 10% to 15% in 2005.

But don't write off the currency success stories of 2004 for 2005, either. For example, ABN Amro ( ABN) is projecting that the euro will climb in the next three to six months by another 4% against the dollar. Add that to the likelihood that speculation about a euro-zone interest rate cut will heat up in the first half of 2005, and you've got the elements for more profits for U.S. income investors from the euro.

How to Play This Twofer

Here's how I'd play the income investing twofer over the next six months or more. First, I'd use a mutual fund to give my portfolio a solid core exposure to the continued decline of the dollar against the currencies of our trading partners in 2005 and beyond. Make sure these funds aren't hedging their investments against changes in currency exchange rates. Your reason for investing in them is to pick up those fluctuations.

An international bond fund with broad exposure to the dollar is the unhedged ( RPIBX) T. Rowe Price International Bond fund . There's no front-end load, and the minimum initial investment is a relatively modest $2,500. But the fund does carry a 2% redemption fee, so this isn't one for trading.

Second, to that core I'd add a position in euro-denominated bonds and stocks. For the bond end of this, I like the American Century International Bond Fund. The fund doesn't charge a load and carries a low -- for this category of fund at least -- 0.84% annual expense ratio. You need $2,500 for an initial investment.

On the equity side, an alternative that MSN Money mutual fund columnist Tim Middleton likes is the exchange-traded fund iShares MSCI EMU Index Fund ( EZU). As an ETF, this has the advantage of low annual fees and no redemption fee, but when you buy or sell, you pay the same commission you'd pay on a stock trade.

Third, I'd look to add exposure to Australia, Canada and the export economies of Asia that compete with China. Here you're betting that the Chinese will relax the very strict peg that ties their currency, the yuan, to the U.S. dollar.

The most likely plan would be to let the yuan trade in a range against the dollar. Because most currency exports figure the yuan is undervalued against the dollar, that would result in a modest increase in the value of the yuan.

The biggest effect of such a move, in my opinion, wouldn't be on Chinese stocks, because any appreciation in their dollar-denominated value would be canceled out by an increase in the price of their exports to the U.S.

I'd look to see the biggest currency-related swings in the stocks of those Asian export economies that compete with China. Here I'd target shares in Korea, such as Kookmin Bank ( KB), the country's biggest lender.

And I'd look to Taiwan, with an emphasis on liquid big-cap stocks such as Taiwan Semiconductor ( TSM). It certainly doesn't hurt that Morgan Stanley Capital International, one of the heavyweights of international indices, will increase the weight of Taiwanese stocks in its benchmark emerging-markets index to 16% from 12% at the end of November. Another bump to 20% is scheduled for June. Index funds that use this popular benchmark will have to buy Taiwanese stocks to keep their portfolios in line.

I have no intention of abandoning stocks in 2005, and that will remain the focus, as always, of Jubak's Journal. I'll do whatever I can to wring gains out of what's likely to be a tricky stock market.

But I would remind you of the fine print that goes along with the stock picks in my columns: I write about stocks, but I expect readers to balance their holdings of equities with other asset classes to build the portfolio best suited to their circumstances. I can't know what that balance might be for any of you. But in 2005, I do think it will pay to add more income assets like these to the mix.

After all, when you're offered a twofer, it makes sense to take it.
At the time of publication, Jim Jubak owned or controlled shares in none of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column. Email Jubak at jjmail@microsoft.com.

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