Do you hedge against the possible devaluing of the US dollar?

[Austin704]

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Originally Posted by Animorph I worry enough about it to have 25% of my AA in a global ex-US equity fund. I used to keep 50% international exposure, but my simplified AA wasn't quite as tidy at that allocation. I wouldn't go less than 25% or higher than 50%, but it does provide a significant diversification.

This idea also confuses me a bit. I have an International Index Fund that invests in foreign companies, but the fund itself is denominated in USD. So, if the dollar were to collapse (hypothetically), how would holding foreign stocks help in this scenario? My dollar denominated fund would still be devalued, right?

[Austin704]

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Originally Posted by Fermion I dunno, it could be fun. "I'll trade you two depends and one 6 oz tube of Prep H for that chicken. I'll also throw in a box of Werthers Orginials.

I think I’ll start my doomsday prepping now... Just in case.

[W2R]

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Originally Posted by Austin704 I’ve never been one to worry much about the value of the US dollar, but with all the political turmoil in the US, contracting GDP, and mounting federal debt (with no end in sight), I can’t help but wonder whether my hard-earned retirement savings will ultimately be devalued or possibly rendered worthless if the dollar collapses and/or loses its reserve currency status. Does anyone else worry about this? If so, what are you doing about it?

Not a whole lot. My portfolio is mostly in broad index funds, with some international but not much. I am not used to spending much money, and I don't spend as much as I could. I plow any excess back into my portfolio. By now, my portfolio has grown to be a bit more than I need to live on but I haven't really expanded the lifestyle to fit the portfolio, KWIM? If the dollar is devalued, I could absorb some losses; but I suppose that at some point in the scenario you suggest, it is possible that I might have to cut back on my spending.

That would not be ideal, although like most of us I have BTDT during accumulation phase. Luckily I don't need much to lead a happy retired life.

I am 72 years old so I don't have as many years to provide for, as some of you younger folks do.

[Sunset]

Quote:

Originally Posted by Austin704 This idea also confuses me a bit. I have an International Index Fund that invests in foreign companies, but the fund itself is denominated in USD. So, if the dollar were to collapse (hypothetically), how would holding foreign stocks help in this scenario? My dollar denominated fund would still be devalued, right?

While they show your fund in USD, the actual companies would be foreign, so the value of the fund would go up given a USD decline, as long as the currencies of those foreign countries went up relatively speaking.

Now if your fund is hedged in USD, what that means is they try to compensate for any fluctuation in the USD currency value. I personally don't like these kind of funds because if I'm investing in foreign countries, I want my return to reflect the value of everything it's invested in. If I think a country is lousy, and will collapse, then I just don't want to invest in it, so no need to hedge.

Second reason I don't like this kind of hedging, is it costs the fund money to do.

[LitGal]

I understand the need for government intervention during this pandemic.
But every time Congress passes another stimulus/checks-to-the-American people/unemployment enhancement package, I see a further bloating of our national debt......that we are kicking the can down the road for our kids and grandkids to deal with later.

But this is a little too easy to say. I am privileged to be retired, as is my husband. So we continue LBYM, living on our pensions and SS. We know just how lucky we are to have them.

Since I fear inflation from the US printing more $, I avoid using my nest egg, hoping it will help my son and his children in their futures. It will also (hopefully) be a safety net if I should live into my '90s (as my predecessors have).

[big-papa]

No I don't, at least not specifically as a currency hedge. But I deliberately have some international holdings to help diversify my portfolio overall. Most hedging I've looked at either involves owning assets I don't fundamentally believe in or which I believe will ultimately result in reduced returns in non-catastrophic scenarios or both.

[Koolau]

One of the supposed advantages of owning PMs is their ability to keep their value in spite of currency fluctuations. I'm not certain PMs have completely born out this theory over the past history of the dollar. I haven't checked. Still, if enough folks believe the theory, it just could be true when the time comes.

Besides foreign stocks/bonds, I can't think of much beyond PMs to hedge the dollar. I'd love to hear of something else as my main 'fear' since FIRE is dollar inflation. Even though I don't want to buy anything, I could see run-away inflation as a FIRE killer. YMMV

[samm]

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Originally Posted by Austin704 .. if the dollar collapses and/or loses its reserve currency status. Does anyone else worry about this? If so, what are you doing about it?

Yes, I worry a little. No, I do not hedge.

The Federal reserve intends to increase trend inflation to at least 2% which will cut purchasing power by 50% over 30 years (longer than I have left).

The $USD was 62% of global currency reserves in Q1 2020. The $USD cannot lose its status unless another currency gains it.

The Euro is 20% of global reserves, but has more problems than the USA, especially its long-term demographic collapse.

The Chinese RMB is only 2% of global reserves. The RMB will NOT replace the $USD in next 20-30 years because the currency is not freely convertible and because the regime is not trusted by international banks (Marxism is not too friendly to capitalism :-).

Slowing US GDP growth is DEFLATIONARY not INFLATIONARY. The economic effects of Covid19 (and Covid 2020, and eventually Covid 2021) are deflationary.

The $USD moves in rising/falling cycles, so a near term decline must be viewed in the context of the 1973-2020 period.

[Out-to-Lunch]

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Originally Posted by LitGal But every time Congress passes another stimulus/checks-to-the-American people/unemployment enhancement package, I see a further bloating of our national debt.....

You forgot to mention "corporate tax cut."

[samm]

Here is the official reserves data & chart from the IMF.

Peter Schiff is ALWAYS on the news saying the $USD will collapse. He is the go to guy for alarmism, which the media wants.

He has been saying this for 20-30 years with NO EVIDENCE at all.

[samm]

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Originally Posted by OldShooter ...So will it happen? ... The Euro is a mess because southern Europe is a mess. The ruble is off the table as a candidate because Russia has cemented its place as an enemy of the West. No one trusts China, ... and so on. The dollar is thus the least bad choice. The most probable outcome is a basket of currencies like the IMF's SDRs: https://www.imf.org/en/About/Factshe...wing-Right-SDR ...

+1

The IMF SDR can only replace the $USD IF the USA will agree to that...which it will not. Even then, the $USD is by far the largest currency in the 5 currency SDR index (called "basket").

The 5 SDR currencies are: USD, Euro, Yen, British pounds,, Chinese Renminbi.

https://www.imf.org/en/About/Factshe...wing-Right-SDR

[OldShooter]

Classical risk management looks at three dimensions of a risk: impact, probability, and cost to mitigate. If impact is high and cost to mitigate is low, then probability (most of the discussion here) really doesn't matter much.

Our equity portfolio (post #5) in VTWAX was chosen because we believe that sector bets are unwise, and a strong home country bias is essentially a sector bet. The fact that our portfolio also hedges us against a decline in the dollar is mitigation that costs us nothing additional.

Our fixed income portfolio in TIPS is a hedge against any kind of US inflation, not just inflation caused by a possible hit on the dollar. Our cost to mitigate all inflation risk is the difference between what we might earn on something other than TIPS and what we actually earn on our TIPS. As I have said here before, I view that difference just like I view our home fire insurance premium, with is mitigating the risk of a house fire. Money well spent. YMMV.

So I think there is a strong possibility of a dollar decline in the next decade or two, but am uninterested in arguing about its actual probability.

[OldShooter]

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Originally Posted by samm +1 The IMF SDR can only replace the $USD IF the USA will agree to that...which it will not. Even then, the $USD is by far the largest currency in the 5 currency SDR index (called "basket"). The 5 SDR currencies are: USD, Euro, Yen, British pounds,, Chinese Renminbi. https://www.imf.org/en/About/Factshe...wing-Right-SDR

To be clear, I used the SDR as an example of a basket, not as a harbinger. My guess (probability unknown) is that it will be OPEC that begins the departure by establishing a basket oil price.

[samm]

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Originally Posted by OldShooter My guess (probability unknown) is that it will be OPEC that begins the departure by establishing a basket oil price.

Oil is priced in $USD per US-Saudi agreement. Saudi Riyal is fixed to $USD.

It is total nonsense to think that Saudis would change this relationship and lose the US defense arrangement that is part of the deal.

[OldShooter]

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Originally Posted by samm Oil is priced in $USD per US-Saudi agreement. Saudi Riyal is fixed to $USD. It is total nonsense to think that Saudis would change this relationship and lose the US defense arrangement that is part of the deal.

As you like. The concept has been discussed for years. Neither you nor I know the probability of it happening. But as I said above, I don't care.

[TechLead]

Lot of things changed in last 4 years which motivates ton of countries to move away from dollar. Its future as a reserved currency is not as solid as it once was.

Nothing lasts forever.

https://framingbitcoin.com/wp-conten...-500-years.jpg

[samm]

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Originally Posted by TechLead Lot of things changed in last 4 years which motivates ton of countries to move away from dollar. Its future as a reserved currency is not as solid as it once was.

Can you elaborate on your many assertions?

I am interested to learn more about this topic from the "FX experts" here.

[LitGal]

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Originally Posted by Out-to-Lunch You forgot to mention "corporate tax cut."

Yup. That, too!!

[copyright1997reloaded]

Yes.
Mitigation Strategies
1. Have some PM's
2. Have some inflation-adjusted instruments (e.g. TIPS)
3. Have equities which get a significant portion of their revenue/income outside of USA. If $ declines, they become more competitive in those foreign lands and their profits represent greater $.
4. Have some international funds/holdings

p.s. if we stop being the reserve currency, all bets are off and we might see much higher inflation and as they say in the old country "The chickens came home to roost". Doing the above will help somewhat but it will still be a bad situation.

[TechLead]

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Originally Posted by samm Can you elaborate on your many assertions? I am interested to learn more about this topic from the "FX experts" here.

No I can't. Moderators would delete it.