Foreign currency deposit (CD)

[peorth]

Hi All,

This will be my first post here.

A little bit about myself: 36, male, single, current non-retirement/non-real estate $$ allocation is 50% in mutual funds & stocks, and 50% in money market and bank deposits. Yes it does seem a bit unusual to have such a heavy cash position. I thought the stock market was overvalued, and sold some of mine stocks and MF's last month.

Right now I'm looking to park some of my cash in foreign currency. I asked around and was referred to this bank:
https://www.everbank.com/
EverBank - World Currency

I'd like to ask:
1) Has anyone had experience with EverBank?
2) Do you think it's a good idea for me to park $ cash in foreign currency, and if so, what currency? (I'm looking at Euros and AUD)
3) Do you think the $ is better off invested elsewhere right now?



Thanks for your help

 

[brewer12345]

I guess I have to wonder why you think forex is a good idea. There is clearly a place for foreign equities and bonds, but why currencies?

 

[peorth]

I guess I have to wonder why you think forex is a good idea. There is clearly a place for foreign equities and bonds, but why currencies?

I think the USD will continue to depreciate, and would like to keep part of my cash reserve in foreign currency CD deposits.

 

[brewer12345]

I think the USD will continue to depreciate, and would like to keep part of my cash reserve in foreign currency CD deposits.

We are talking about a true cash reserve, like an emergency fund that you might need to tap any given day? If so, I would leave it in dollars if that's how your expenses are denominated.

If it is part of your long term portfolio, I guess you are entitled to your beliefs. I would probably go with a non-USD sovereign bond fund, myself. BEGBX or even GIM (now that it is trading flat with NAV).

 

[soupcxan]

Certainly you can buy some foreign currency and hope that the dollar continues to devalue, but the FX markets are a lot more sophisticated than that. The dollar's slide may already be priced into forward contracts. I would learn a bit more about interest rate parity before I started blithely buying individual currencies. In line with brewer's suggestion, I hold BEGBX.

 

[FIREd]

I think the best way for US investors to play the currency game is to invest in stocks and bonds denominated in foreign currencies.
In all fairness, I do own some CDs denominated in a foreign currency, but my situation is a bit different. 1) It's money I invested while living in a foreign country and that I am planning on spending in that foreign country. 2) I got a very good interest rate (5.25% tax free (ex. US) garanteed up to 12 years). Today you'll get about 3.5% interest on a Euro bond.

 

[FinanceGeek]

Another non-USD sovereign bond fund that I've owned in the past is AWF, they focus on emerging market debt, its partly hedged and partly exposed to USD depreciation.

IMHO, right around the time that "everyone knows that the USD will continue to depreciate" (alternately: "real estate can only go up", "tech stocks are the only future worth investing in", etc), is the time to take the opposite bet.

 

[brewer12345]

IMHO, right around the time that "everyone knows that the USD will continue to depreciate" (alternately: "real estate can only go up", "tech stocks are the only future worth investing in", etc), is the time to take the opposite bet.

Mmm-hmm. I remember buying GIM at better than a 5% discount to NAV a few years ago because everyone was sure that the USD would keep strengthening vs the euro (and everything else).

 

[peorth]

Let's say... hypothetically, you had $200k on hand, and you put $100k in Vanguard Global Equity, and the other $100k in Vanguard Prime Money Market.

How would you adjust your allocation today, if you think you might pull some $ out in ~3 years to purchase additional property?

 

[brewer12345]

Assuming you have no other potential need for cash? I would add some USD bonds, commodities, foreign bonds, US equity, etc. A diversified portfolio.

But I invest mostly in individual securities, so this is a case of "do as I say, not as I do."

 

[peorth]

Assuming you have no other potential need for cash? I would add some USD bonds, commodities, foreign bonds, US equity, etc. A diversified portfolio.

But I invest mostly in individual securities, so this is a case of "do as I say, not as I do."

My portfolio is pretty screwed up.

I was taking a trip overseas last month and knew I wouldn't have internet access. I felt the stock market was overvalued and wanted to reduce some risks, so I sold most of my stocks (except Apple) and VEIEX mutual fund. The result is that I have a cash-heavy position that looks like this:

Cash:
$108k in money market account
$45k in bank deposit (4.5% interest rate)

Equities:
Vanguard Global Equity: $80k
Apple stocks: $26.7k (160 shares)

I also own a condo with about $230k in equity, and $284k in retirement account. My retirement account is entirely in mutual funds, the allocation is as follows:

75% Growth
- 3.5% emerging market
- 8% domestic growth
- 8% smallcap international growth
- 80.5% international growth (large cap?)

25% Growth and Income
- 25% World Growth and Income fund

My debts include $170k mortgage on condo and about $18k in student loans. I pay off my CC monthly and own 2 cars free and clear.


I reviewed my portfolio this week and thought if I showed it to a financial adviser, they'd think I'm nuts or tossed darts at a dart board for investment choices. I have way too much cash position for non-retirement funds and too much international funds in my retirement account. I'm hesitant to invest heavily in current market because I felt the stock market is overheated, and with falling dollar, I was thinking about converting some of the money market funds to international currency CD's. I'm 36, make about $90k/year from my job, might be getting married next year, and looking to buy a larger house in few years.

I'm open to suggestions! Help!

 

[brewer12345]

I think the best place to start is to draw up a statement of what your long term, intermediate and short term goals are, and what you risk tolerance is. Once you have that down on paper, you can construct a sensible portfolio.

So, what are your goals, including timeline?

 

[peorth]

I think the best place to start is to draw up a statement of what your long term, intermediate and short term goals are, and what you risk tolerance is. Once you have that down on paper, you can construct a sensible portfolio.

So, what are your goals, including timeline?

Hmm...

Short term:
Get married next year (2008 )
Purchase larger home (2010'ish, depending on market conditions)

Intermediate term:
Invest in additional income properties in US or other countries
Continue to invest in retirement fund

Long term:
Have sufficient passive income from investment property for ER
Have at least $1 million in tax-deferred retirement fund (currently at $284k'ish) for old-age

 

[lswswein]

Let's say... hypothetically, you had $200k on hand, and you put $100k in Vanguard Global Equity, and the other $100k in Vanguard Prime Money Market.

How would you adjust your allocation today, if you think you might pull some $ out in ~3 years to purchase additional property?

Though it might be tempting to invest the money, if you are going to be using the money in ~3 yrs I suggest you leave the money in MoneyMKt account. In the short term the market could do anything and you don't want to be in a situation where you are forced to sell a Fund at the bottom.

-h

 

[Maurice]

I've held foreign currency accounts at Everbank for about 5 years.

I had just returned from living in France and was looking for a US-based bank that would take my Euro account. At the time I was doing my research (2002) Everbank was the best option I could find for a retail account holder. Besides transferring my Euros, I opened a Yen account.

I still have both those accounts but I haven't done any research as of late to see if there are better options available for holding foreign currency in the US. There are certainly easier options - CurrencyShares ETFs for example - you can buy FX like its a stock. The downside to those is you miss the chance to earn interest like you can at Everbank (on most currencies at least).

Having said all of that, I have since come to the opinion that there are better options for dollar bulls such as myself - namely non-USD denominated assets. Thus I've not put any new money in my Everbank accounts in years.