4 Ways to Protect Against a Falling Dollar

The US dollar is in bad shape. Over the past several years, the federal budget deficit has shot up like money is going out of style – and maybe it is.

This caused the federal debt clock to add a 14th digit (by breaking the $10 trillion dollar mark).

We’ve also got an out-of-control trade deficit. For having a 40% share of the world’s economy, we certainly don’t produce that many goods.

Finally, we have a credit crisis that is causing many to worry that our lenders, like China and Japan, will turn off the tap.

With this nightmarish scenario we find ourselves in, it wouldn’t surprise us if the US’ credit rating fell. That would cause an immediate panic in the currency markets and send the buying power of the dollar into a tailspin.

I guess what we’re saying is get out of the dollar as fast as possible!

There are a couple of ways to go about this:

Currency Protection Strategy No. 1: Sell the Dollar

The easiest way to get out of the dollar is to trade in the cash you don’t need to live on for another currency. You might even be able to hold other currencies in your brokerage account.

Here at Lifetime Income Report, we don’t recommend currencies directly. We’re here to help you find income, not to pick currencies.

Exchanging currencies is one way to protect your wealth from a potential dollar disaster. But it’s not the only way…

Currency Protection Strategy No. 2: Buy Precious Metals

There’s probably no safer way to protect your wealth in the world than to own gold and silver. There are many Web sites and exchanges where you can do this, as well as coin dealers that can help you make this move.

While we personally think precious metals are going to continue increasing in value, you probably shouldn’t just spend all your money on gold nuggets. There’s a big difference between the spot prices and what you would pay. Gold coins, for instance, are trading at a hefty premium over spot.

Currency Protection Strategy No. 3: Buy US Companies With International Exposure

Again, this shouldn’t be a surprise. We have many US companies in our portfolio. After all, we are here for income, not to be global traders. But you’ll probably notice that most of our US companies have plenty of international exposure.

Currency Protection Strategy No. 4: Buy American Depositary Receipts

We saved the best for last. This is the theme we have been hitting the hardest in recent months. ADRs have been a cornerstone of this newsletter. From the very first issue, we had at least two ADRs in our portfolio. This month, we are adding another.

There’s a huge reason why we buy ADRs instead of the currencies themselves. Instead of just the upside of foreign currency to US dollars, we also get the benefit of fast-growing emerging markets and mega income from international players.

You see, foreign markets, especially now, have huge dividend yields.

The US is near the bottom of the list of places for income investors to look. The smart money is in companies staying out of the dollar.


Jim Nelson
for The Daily Reckoning

The Daily Reckoning