Falling Dollar

[Markola]

I’ve been noticing my international stock index fund outperforming my domestics in the last few months and this Barron’s article gives some insights into what’s happening, including:
- Low interest rates making U.S. bonds less attractive to global investors
- The flood of stimulus cash and mounting debt making diversification from dollars more appealing to global investors
- The failure of the U.S. to get Covid under control vs. other countries, whose economies are starting to prosper again.

It also suggests some ways for active investors to respond, though I’m doing none of that, since about 30% of our portfolio is already international.


https://www.barrons.com/articles/how-to-prepare-your-portfolio-for-a-weaker-dollar-51598009400

 

[OldShooter]

Yup. And none of that even considers the possible/probable/near-certain (you pick) demise of the dollar as the world's exclusive reserve currency.

We too are comfortable with our portfolio -- holding the world's stocks on a cap-weighted basis. Last time I looked, that worked out to about 45% international. No tilt. No sector picking. Just buying and holding everything.

VTWAX/VT for anyone who is interested.

 

[Koolau]

I can't say I'm not concerned about the fall of the dollar - or the eventual replacement of the dollar by "something" else as reserve currency. It's just that I have no idea about the what, where, who, when, why of it all. With that in mind, I'll just stay the course and hope for the best. I have, for quite some time, established back-ups just in case. Have I done that correctly? Who knows? I guess we'll see, so YMMV.

 

[Montecfo]

Yup. And none of that even considers the possible/probable/near-certain (you pick) demise of the dollar as the world's exclusive reserve currency.

I chose "improbable".

 

[Closet_Gamer]

i recall a thread recently about whether keeping international in your AA was smart. We were all commenting that for the most part, our international holding were exceptionally good capital loss engines.

But that we held them as a possible currency hedge and to stay invested in emerging markets.

Will be interesting to see if this is the "payoff" inflection point or just noise.

 

[Markola]

If one is truly committed to an indexing style of investing, they’d have a portfolio more like OldShooter’s, reflecting the market cap balance of the whole planet. We aren’t quite as devout, it seems, with about 30% international exposure, but it is in the range of what Vanguard recommends, i.e. a minimum of 20%.

I do think we take a very long term perspective in our investing, believing in reversions to the mean over time of asset class prices. If one has this perspective, then the graph on p. 7 of this paper becomes pretty compelling: https://personal.vanguard.com/pdf/ISGGEB.pdf

The paper does make the point that domestic/international correlations are increasing significantly, so probably the last 20 years on p. 7 are more relevant than the data through the last century.

 

[Chuckanut]

So far I don't see what would take the place of the dollar.

The Euro - maybe, if all the Euro zone countries can finally agree to agree on things that might happen.

The Yuan - Give me a break. Who wants a reserve currency from a country run by an authoritarian government with a President-for-Life running the show?

The Dollar is like democracy - The worst except for everything else.

That doesn't mean I won't hold International Index funds.

 

[MichaelB]

I chose "improbable".

Yes, and I would add “highly” to that. There’s only one thing needed for the US$ to be replaced as global reserve currency, and that’s for another currency to volunteer to take it. So far, no volunteers. Outlook, no volunteers.

 

[Texas Proud]

Did not read the article but just the bullet points do not make sense to me...


Interest rates on gvmt bonds are MUCH higher than in other countries... they had something on TV stating that much of Europe is buying US bonds.. now, it might be less attractive than higher interest rates but that is not an option...



I have been hearing about the demise of the US dollar being the world reserve currency for decades... and right now there is $1.95 trillion of US cash floating around the world... actual physical cash.. I cannot find a new number, but the one I found said 60% is being held overseas...



I can still go to various countries around the world and go to an ATM and withdraw US dollars along with the local currency.. I never see where I can withdraw any other form of currency..


BTW, this goes along with the predicted demise of paper money and checks.... but they continue to be used in record numbers...

 

[OldShooter]

As I have said/posted before, I am not concerned about the probability of a dollar demise. The impact of such an event would be huge all across the US economy (and worldwide for that matter), so I am happy that our investment strategy buying international stocks and TIPS provides pretty good protection. Probability high or low, it would not matter to our strategy.