What are the best ways to hedge against a weakening US Dollar?
I am an expat, my salary is pegged to the US$. However eventually I will return to the UK to live. The prospect of a weakening $ therefore is quite concerning for me. What is the best way for me to hedge against this risk?
- Commodoties (gold/oil in particular) are often cited as hedges against a declining dollar. As the dollar weakens the price for these will go up, as they are priced in dollars. But won't the rise in gold/oil merely offset the dollar's decline, plus/minus the effect of supply/demand/other fundamentals of the commodity? Therefore for the non-US dollar investor, what you're actually buying is not a dollar hedge - as the effect of this should be zero in the long term. Is this correct?
- Perhaps the purest way to dollar hedge would be to buy a basket of non-USD currencies. This could be done through an ETF.
What are the risks? What I am trying to accomplish is not to profit from a falling $ but to reduce the risk of my future earnings being eroded by a tanking $.
Answers
3963 points
MNSL answered 4 months ago …
I think foreign small and mid caps might be your best hedge against a weak dollar.
However, we must make sure whether we will have weak dollar or strong dollar specially during next 18 months.
2082 points
alanj answered 4 months ago …
When the dollar goes down the other currencies go up. If you are paid in US dollars and the dollar continues to fall when you move to the UK I assume you will convert the US dollars into Sterling Silver. Which if the dollar falls you will receive more Sterling Silver. That's your hedge. But it sounds like you want to make more than a hedge. In which case I would agree with MNSL , but I would be sure to trade with the trend using an ETF that trades in the small and mid cap international markets.
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