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Investing in Foreign Bonds Hedges Against Falling Dollar

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It’s a well known fact that most Americans invest their money in American-based companies and securities rather than looking to do so abroad.  In part, this is due to a lack of knowledge about how to go about doing so and what the risk/rewards are. The purpose of this writing is to bring about awareness to a strategy being used successfully by many US investors (but not nearly enough). This type of investing can act as a nice insurance policy against the falling value of the US dollar and provide a quality return-on-investment with very little risk. 

In buying foreign bonds, you are investing in a safe but predictable investment vehicle designed to protect your principal by minimizing market risk exposures which are prevalent in most international economies. For most US investor amateurs, this is a practice they use in their own portfolios but only with domestic bonds. This practice of “hedging” with bonds is just another way to have some of your money invested safely in case of catastrophe to the equity markets. The only real risk to these types of investments is that as the dollar strengthens against the foreign exchange rate, the net return on these foreign returns gets proportionately diminished.

In order to be able to jump into foreign bond investing, you will need to either do your research and set up investment accounts in the foreign countries with which you choose to invest, or contact a broker dealer and consult with an agent who has experience in that area. They can certainly get you started in the right direction by identifying which bonds are paying the best yields and over the most favorable time periods.

One specific example I can point to right now is the consistently strong Australian Dollar in the form of Australian Bonds which is paying a very safe 6+ percent yield and was recently as high a 7.5%.   Note that these are rates you can lock in for a little as two years. Now I am not saying to dump all your money into Australian bonds, just that you may want to have a real good sit down with you advisor about making foreign bonds one component of a building a balanced investing portfolio

So what are you thoughts? Do you use foreign bonds or other external investments to derisively your investment allocations? What future do you see for the relative strength of the dollar over the next two years and beyond?

Michael Sexton is President of Trump University.

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4 Comments

[-] Posted by member1789494 on 04/26/2008 7:43 AM
Nice idea. BUT . . . I have been looking for years for ways to actually DO this and can find no brokers or dealers who actually do this for clients. A more helpful piece of info for Trump U is an actual list of dealers through whom one can buy such bonds.
[-] Posted by member1842347 on 08/07/2008 5:04 PM
Hi,
I don't know if you're interested in mutual funds, but I was noticing on my 401K performance page that the only fund which did well of the 29 choices we have with Hartford was the Oppenheimer International Bond Fund, which was what I was researching when I found this article. It's rating was AA on one website, and it's 1 yr avg as of 7/31/08 was 10.55%, compared to all the other options which were mainly between -7% and -14%, with a few in the 0 to -5% and a few in the range from -15% to -24%, and those others were quite comparable to the returns of such standards as the S&P500 and other indexes. Only one other fund had a positive 1 yr record: the money market fund with a 1 yr avg of 2.96%. Hope this helps. Good luck.
[-] Posted by Rachael Sutton #1253595 on 12/26/2008 11:18 AM
It makes sense that since we have a global economy, we would also begin to invest globally. There is a market for these services and the education to utilize them.
[-] Posted by member1933753 on 03/11/2009 2:14 AM
Good points! But with the economy we have today some people are afraid to invest most of their money to business. It is just so sad that there are lots of people today who have loss their job and some of them are facing bankruptcy. It is indeed that the economic crisis that we are facing gives suffering to people. Nowadays, a good credit score is vital to maintain and it can be hard to do. Lately, holders of credit cards have been noticing that their credit limits have been slashed, and it may have something to do with their credit scores. Great things to do with a card is to keep the balance at 30% of the total limit, use it sparingly, and always pay back small balances quickly. The quicker the whole thing gets paid off, the better your credit will be. If you need a short term credit solution and a card isn’t available, a payday loan can come in handy in a pinch, and they (depending on lender) can be fast, easy, and best of all they don’t check your <a href="http://personalmoneystore.com/moneyblog/2009/03/03/5-ways-avoid... score</a> to get you the cash you need to fix a sudden problem.
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