Should We Worry About the Shrinking Dollar?

By: Lily Mei

The dollar has been shrinking since March 2008, and at the end of last week the dollar was only 0.65 euro down from 0.80 from last month. The underlining question is should we be worried?
The answer is yes and no. Yes, because the shrinking dollar is a problem for investors especially if all your assets are in dollars and most of your goods and services are priced in other currencies. Luckily, most investors can protect their assets from further erosion of the dollar in three simple ways.
Essentially you would want to diversify your assets in foreign currency, gold, and/or a range of different sustainable commodities. There are risks in reinvesting your assets in any of these three ways. In general, if you are trading in foreign currencies you can faced hefty tax rates.
Gold may be the safest way because in history whenever there was a recession the price of gold usually increase. Furthermore, if the dollar keeps dropping, you may want to think of stocks and bonds in euro, yen, or rubles because they will tend to become more valuable than buying in dollar.
Overall, in time the dollar may strengthen once again, but in a scenario of a long-term decline in dollar it may not be bad to rethink and plan ahead of diversifying your dollar valued assets so you wouldn’t suffer as much of a loss.

Sources:

http://articles.moneycentral.msn.com/Investing/Dispatch/061128.aspx

http://www.bloomberg.com/apps/news?pid=20601100&sid=apvyWkjStAL0

http://online.wsj.com/article/SB125271048869905007.html

http://www.economist.com/opinion/displayStory.cfm?story_id=2404984