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Thursday, October 16, 2008 - Vol. 10, No. 247
Today's comment is by Sean Hyman, long-time FX instructor and Currency Analyst for The Sovereign Society.
You know, when most people think of currency they just think about the money in their wallets or purses. However, they don't realize that they are carrying a whole separate investment class in their pocket.
Yes, that's right! The same money you use to buy gas and groceries could actually be making you more money right now. And the nice thing is there are so many major currencies around the world, that there's always at least one or two major currencies going up at ALL times. Right now is no exception.
Not only is the stock market floundering right now, but you'd be hard pressed to find a sector of the economy that's doing exceptionally well.
At the moment it seems like just about every sector of the economy is paying the price and it's also being reflected in most stock prices. And not just here in America but all over the world!
‘Well,' some might say, ‘that's okay, I'll just invest in commodities.' After all, they always go up when stocks go down right? Wrong! There are times when commodities drop in value right along with stocks. And guess what? We're in one of those times.
So what can you do? How in the world are you supposed to protect yourself in times like these?
Currencies Can Shield Your Portfolio in Good Times and Bad
You can come over into the "hidden world of currencies."
I say "hidden" because many people know so little about the world's biggest market. Yes, the currency market is bigger than all of the world's stock markets combined. This market gushes with US$4 trillion worth of currencies EACH DAY, 24 hours a day.
In times of turmoil, there's always a safe haven in currencies. The trick is finding it. These opportunities normally don't pop up on investors' radar screens because most investors have no idea how to even get a quote or a chart for a currency.
In fact, in these tough times, the Japanese yen has been soaring like a rocket and so has the Swiss franc. Savvy hedge fund managers have been buying up the yen as stocks have crumbled. They saved their portfolios (not to mention their jobs) by grabbing this lifeline.
So how can you take the sting out of your portfolio like they do? After all, can the Average Joe get involved with this market or do you need to have billions of dollars under management to gain access?
Well, since the late 1990s, retail investors have had access to the spot forex market. And in the last couple of years, industry leaders have invented more investments to allow stock investors in on the currency game too.
So let's take a look at some of the easiest ways to get diversified into currencies so that the madness happening to most portfolios never has to happen to you again.
Trade Currencies Through Your PRESENT Stock Brokerage Account
Now you can use currency exchange traded funds (ETFs) to invest in currencies through your current stock brokerage account. And it's true that many brokers don't know much about these because they aren't a focal point of their business.
However, you can use ETFs to buy currencies from many of the world's major countries. In fact you can buy ETFs that track the euro (stock symbol FXE), the British pound (FXB), the Japanese yen (FXY), the Swiss franc (FXF), the Canadian dollar (FXC), and the Australian dollar (FXA).
In fact, you can even invest in some country's currencies that aren't so "major" such as the Swedish krona (FXS) and even the Mexican peso (FXM). And the good news is more currency ETFs are coming out all the time.
The best part is that you can invest in them in the very same account that you would use to buy shares of Google, Apple, IBM or GE.
There are only two drawbacks to investing in ETFs. First, ETFs can't provide the leveraged returns you can earn in the spot Forex market. Also, you have to pay commissions just like a typical stock (on the buy and on the sell side, just like stocks). However, it's worth noting that the spot forex account doesn't have commissions on the buy or the sell side.
So if I buy FXY in a Charles Schwab or E*trade account, then I can profit from the yen in a typical stock brokerage account. Then once normalcy resumes in the markets, I could sell the yen position and buy something like the euro or the pound (both tend to do better in good times).
FDIC-Insured Foreign Currency CDs Provide Shelter from the Storm
Another very simple way to invest in this asset class and shield your portfolio is to buy Foreign Currency CDs (yes, you can buy Certificates of Deposits that are denominated in euros, yen, pounds, francs, etc.)
It's an excellent way to get some of your market exposure away from stocks and into something that can actually counteract your present losses.
So where can you buy a currency CD? Do you have to send your money to a foreign land and into a foreign bank? Of course not! You can take your U.S. dollars (or other currencies) and buy CDs denominated in another currency through a bank right here in the United States.
EverBank (in Florida) is the only U.S. bank I know of that offers such unique products like this...not only for Americans but for clients from around the world.
And best of all, most of these Foreign Currency CDs are FDIC-insured, so you can rest easy knowing that your deposit is backed by the full faith and credit of the U.S. government.
In fact - just to keep it simple - EverBank offers CDs that focus on a basket of Asian currencies for instance...or yet another than focuses on most other major currencies except the U.S. dollar. That way you can diversify away from the greenback when it's falling like a rock, or just minimize your exposure to any single currency (including the dollar) for better portfolio stability.
SEAN HYMAN, Currency Analyst
P.S. If you're interested in long-term buy and hold currency strategies, I recommend taking a look at Chuck Butler's new monthly currency newsletter, The Currency Capitalist. Chuck is one of the world's foremost currency experts, and he'll tell you everything you need to know in order to set up a strategy and start capitalizing on the long-term safety available in the ‘hidden world' of currencies. Interested? Click here for details.
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