What Is a Currency Devaluation and Why Is it Hurting Stocks?

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There's a trade war and the Yuan was devalued and U.S. stocks are falling. 

Complicated stuff, huh?

Well, these things are never as complicated as they sound, and the same goes for China's currency devaluation.

Before we break down how that's impacting your portfolio, let's go over what exactly a currency devaluation is.

It's when China pegs, or influences, its currency to make it lose value when compared with other currencies.

So, why do U.S. investors care? That's what China's doing, not the U.S.

There are two reasons. First off, a cheaper Yuan makes it cheaper for global companies to buy China's manufactured goods than to buy American goods. Secondly, China's currency devaluation signals the trade war is nowhere near over.

Before we get into detail, how about a little life analogy first?

Imagine you're going to a party where you have to bring your own beer and bring this and bring that, and by the end of all these requests, you say 'you know what? I'm turned off. I don't need to go. I'll just go hang out with this other friend.'

The drinks and the gifts and all this other stuff is like currency at the party. You have to own the currency to be at the party. Well, what if there's a cheaper currency - or none at all - for hanging out with the other friend? You'd probably do that.

Now to see what the rest of the nitty-gritty details are -- which you're ready for -- watch the video above.

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