Have you seen the headlines? The U.S. dollar is weakening!! AHH! No!!! Hide in the bunkers!!!
I AM KIDDING.
Truth is, a weakening U.S. dollar isn’t necessarily a terrible thing. Sure, there are some downsides, but there are some positives too. Let’s explore them:
1. The U.S. dollar has an inverse relationship with emerging market and international stocks.
So, if the U.S. dollar is decreasing in value, the international stock markets are often going up! Take a look at these charts to see the pattern I am talking about.
Remember how I’ve said you need a diversified portfolio? Well, a diversified portfolio includes a healthy amount of emerging market and international stocks. Play your cards right, and the depreciating U.S. dollar can help your portfolio!
2. U.S. tourism is suddenly more appealing to foreign travelers.
Cities like NYC, LA, Orlando, Chicago, Las Vegas, and Miami might have an influx of travelers and dollars spent… well, once COVID is no longer hampering travel.
Why? Because, for foreign travelers, their own money will go farther! Maybe they can buy a few extra souvenirs or stay an extra day at Disneyland since they are getting more bang for their buck.
Anytime money is spent here, it’s a good thing for U.S. GDP!
3. U.S. multinational corporations get a boost.
If a U.S. company has profits denominated in yen, they convert it back to the U.S. dollar. When they do, there will be more dollars for the U.S. company. That’s a win for their balance sheets and, therefore, their stock price!
4. Our trade deficit might say “thank you.”
This is similar to point #2. American products are suddenly more affordable for foreign buyers. Therefore, other countries might be more likely to import U.S. goods.
That does mean, however, that it is more expensive for us Americans to import foreign goods. So… where is the positive there??
Well, Americans might be more inclined to purchase American-made products. Foreign goods aren’t as cheap as they used to be, so the formerly expensive American-made products are suddenly more price competitive for us to buy.
Listen up: This is why active portfolio management matters!
An active investment manager is looking for these trends in the market and can better position your portfolio to reap the benefits. Be sure you’re working with an advisor who knows her stuff!