mrsub wrote:Do you guys worry about currency risk - such as problems with the US dollar in the future? How are you hedging your bets with that?
The term "currency risk" means the risk involved in currency exchange
; look it up. There is no such thing as currency risk if you only deal in one currency. To the extent that I earn, buy, and spend in my home currency, I do not experience currency risk. The only
currency risk I experience is in my holdings of Total International Stock Index Fund.
The interplay of currency strength and the economy is very complicated. You will notice that most countries generally want their currency to be weak
. One conspicuous episode of dollar weakening occurred from 2002-2008; I did not notice any obviously terrible effects.
I'm not too worried about currency risk. Having lived through the double-digit inflation surrounding 1980, I am
very aware of inflation
risk and I worry about it. But that's not the same thing. One fear about a weakening dollar is that it will make the imports we buy more expensive and increase prices, i.e. inflation. But, you'll notice that this didn't happen in 2002-2008, maybe someone better tuned into economics can explain why not.
As for how I hope to deal with inflation, supposedly equities sorta-kinda tend to have a constant-ish real return in the long run, meaning they counteract inflation over long periods of time. Within my fixed income allocation, considerably more than half of it is in explicitly inflation-indexed securities, namely TIPs and series I savings bonds. I also have annuitized about 1/4 of my portfolio and of that, half is in an explicitly inflation-indexed SPIA. So I have partial protection, of a kind.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.