The Dollar's Decline Drives Home a Diversification Lesson

The plunging dollar is not just an interesting graph in the newspaper. That dollar is you. When you pay $2 for lodging and order a seven-course meal for a trivial sum, as I once did in Hungary in the late 1980s, you feel like a million dollars — even if you’re just a poor college student. When you’re watching every shekel, even in your mid-40s, you don’t feel quite as prosperous.

U.S. economic policymakers have brought us down. In particular, excessive public spending has put a crimp on private spending. And it may be a long time yet before we get our fiscal and monetary house in order. Until then, Americans, and advisors on behalf of their clients, must hedge against this decline in our world economic position.

One way to do that is to own gold or silver. The recent rout in metals could be construed as a warning against ownership of commodities that pay no interest or dividends and create no value. Alternately, it could be seen as a buying opportunity. Another popular approach is to buy foreign currencies. The many inputs — economic and political — that fuel forex trading make this an enterprise few should attempt, aside from the fact that currencies do not create value any more than commodities.

The best solution is foreign stocks, and most Americans should increase their allocation to this area. Had I been a shareholder in Nestle (NSRGY), that $11 sip of Nescafe might have tasted a little less like hemlock.