How the value of the dollar impacts investment portfolios

(This article has been updated as of 8/16/2018)

This is one post in a series based on our “Quarterly Questions & Answers.” Each post covers one of the important topics we discuss with our wealth management clients.  Today’s topic is:

The dollar seems to drive so much, from the stock market to interest rates and oil prices. How am I exposed in my portfolio?

The dollar has been on a wild swing for the past couple of years. What many investors don’t realize is that the movements in the US dollar affect more than just prices when you visit a foreign country or purchase of an imported product. The recovery of the stock market in 2017 had as much to do with the falling dollar as it did with the economy and Federal Reserve policy.

When you invest in foreign stocks or a foreign stock mutual fund, you have two bets going – that is, 1) foreign stocks will go up and 2) the dollar will fall against the currency of wherever that stock is held.

As the value of the dollar changes it makes sense to ask your advisor, “How much exposure do I have given the fluctuations of the US Dollar?”

For our clients, we may take some of this risk off the table by hedging a portion of that currency bet. We hope that leads to less volatility when things get hectic in global markets. Ask your advisor about their approach.

Want to know more? Check out the rest of the posts in this Series:

• Higher interest rates: How am I positioned with interest rate risk?
• Department of Labor’s Fiduciary Rule: What does it mean for retirement accounts?
• Who is better for the stock market, Trump or Clinton?
• Mutual Fund and Exchange-Traded Fund (ETF) Fees: How to take advantage of reduced fees in your portfolio