Positive Aspect Of Currency Risk?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Swelfie
Posts: 181
Joined: Mon Mar 14, 2016 12:54 am

Positive Aspect Of Currency Risk?

Post by Swelfie » Mon Aug 15, 2016 1:12 pm

I had an interesting comment in another thread and I haven't seen this discussed here and would be interested in hearing other's thoughts on this.

A common reason given for not investing in foreign equities is exposure to currency risk. It is my opinion that some currency risk is a good thing.

I'll start by describing why currency risk is not a good thing. Overall currencies, unlike equities, do not rise in value. If you were to buy an index fund of all currencies in a cap weighted fashion, you would lose money to inflation and default. If you invest in a single currency, that currency may go up or down relative to other currencies, but the trend would be downwards. So investing in currencies directly, except in the case of hedging currency risk, is generally not a good Boglehead investing strategy (although the speculation market is alive and well). But investing in foreign equities gives real companies whose underlying value is based in that foreign currency and the value of the company, relative to your home currency will fluctuate along with the foreign currencies value relative to yours. This is currency risk. Now, we are all used to investing in risk and have a risk tolerance, but we like to invest in risk that gives a return. Since the value of the foreign currency relative to your own may fluctuate but is not skewed towards growth, there is no risk premium in currency, and maybe even a negative skew. This is similar to introducing the game of craps to your portfolio. Sure, you are taking on additional risk, but this is not a valid diversification technique because even though you are introducing non-correlated volatility and taking on addition risk, the risk premium for craps is negative, so this will only serve to hurt your portfolio.

Now, my counter argument and why I believe introducing some foreign currency risk can be a good thing.

I live in the United States and plan to retire here. As a result, I think the majority of my assets should be valued in US Dollars since that is the currency I will mostly be spending in my retirement. However, I will not be spending only US Dollars. I will be traveling internationally and buying some international goods. Because I will be spending a portion of my money internationally, I am subject to currency risk by investing only in domestic equities and bonds. If the dollar grows then I would have more buying power internationally, but if it drastically shrinks, my buying power internationally can be greatly reduced. So, it is my contention that I am already subject to foreign currency risk before I have ever invested in a single foreign asset. The direction of this risk is as if I had shorted the foreign currency market. By owning some foreign equities or unhedged bonds, I am placing an offsetting long position in foreign currencies in addition to the additional diversification gained. So, by investing in foreign equities, in my opinion I am actually REDUCING my foreign currency risk. The maximum benefit for risk reduction in my AA would occur when the proportion of my portfolio invested in unhedged foreign assets was equal to the anticipated proportion of foreign expenditures I will have in retirement. Since I have no idea what that number is, I pick 12% for the currency hedge and diversification benefits, but to each their own. My point being that I feel a reasonably small exposure to foreign assets is a hedge against a weakening dollar and actually servers to reduce, not increase currency risk.

User avatar
nisiprius
Advisory Board
Posts: 34340
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Positive Aspect Of Currency Risk?

Post by nisiprius » Mon Aug 15, 2016 1:31 pm

Sure. If your plans call X% of your spending will be done abroad, then it is perfectly sensible to plan to keep about X% of your portfolio in the currencies of the countries you will be spending in. Or similar currencies, if there is such a thing--I assume that the currencies of a geographic and economic region do behave somewhat similarly but I don't know.

You incur currency risk when you convert currencies. It isn't holding foreign currencies that incurs the risk. If you invest directly in the target currency you will be spending in, you avoid converting currencies and you reduce currency risk.

That isn't a "positive aspect of currency risk." It isn't a case where currency risk is a good thing. It is just saying that in theory, there are situations where holding some foreign currencies reduces your need to convert currencies and thus reduces your currency risk.

I say in theory because I can't believe this is an important consideration for most of us. For you, how big do you think X% is? In my case I expect it to be less than 5%. But even an expectation of spending 10% outside the U.S. doesn't in itself suggest a 50% allocation to foreign stocks.
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.

randomguy
Posts: 5027
Joined: Wed Sep 17, 2014 9:00 am

Re: Positive Aspect Of Currency Risk?

Post by randomguy » Mon Aug 15, 2016 1:37 pm

If the US dollar dropped in half, how much more would you need to spend to maintain the same lifestyle? My german car would cost more, my Korean TV would cost more, my Mexican fruit would cost more, my Australian beaf would cost more, my Vietnamese clothing would cost more, and so on. And of course there are secondary effects (i.e. I can see my chineese iphone being more expensive. Realizing that all the network equipment is more expensive so my mobile bill goes up 50% is a lot harder to predict). Obviously at some point replacement goods become possible (US farming becomes profitable) but the idea of I spend US dollars so that is all I care about is very simplistic.

Random Walker
Posts: 2120
Joined: Fri Feb 23, 2007 8:21 pm

Re: Positive Aspect Of Currency Risk?

Post by Random Walker » Mon Aug 15, 2016 1:59 pm

Currency risk is way beyond my knowledge level, but heck I'm not going to let that stop me from commenting. Currency risk can go both ways, and if you expose yourself to it you are probably exposing yourself to additional diversification benefit, assuming you rebalance. In the long run currency effects are probably random but can provide some diversification potential.

Dave

Valuethinker
Posts: 33398
Joined: Fri May 11, 2007 11:07 am

Re: Positive Aspect Of Currency Risk?

Post by Valuethinker » Mon Aug 15, 2016 4:04 pm

Your big costs are usually:

- housing - either rent, or the imputed rent on your home -- that's in USD

- health care - that part uncovered by retirement plans, Medicare etc. - again that's essentially in USD

- driving - OK but you buy a new car in retirement every 10 years? And for example Japanese cars in America are largely made in transplant factories? Or in Mexico (tracks USD)? Oil is priced internationally in dollars, so gasoline is what it costs, you can't hedge away that by being clever in currencies

Beyond that

- travel - may well be in a foreign currency, although flights are priced in USD

- imported goods? How much of that is for the average retiree? I mean you replace a phone every 3 years, a computer every 5, a TV every 10? The actual pricing cycles in those industries probably matter more than the currency fluctuations-- remembering companies often "take it on the chin" to keep their selling prices stable in USD

Basically I see it that for most retirees 60-80% of their costs, and maybe higher are in USD. Might be 90%. Particularly as you get older and travel less.

If one is worried about USD inflation then the right hedge is TIPS. Not foreign currencies. Unfortunately services (healthcare!) tends to rise faster than CPI but middle class retirees also tend to have housing wealth (which will also tend to rise w CPI).

Valuethinker
Posts: 33398
Joined: Fri May 11, 2007 11:07 am

Re: Positive Aspect Of Currency Risk?

Post by Valuethinker » Mon Aug 15, 2016 4:10 pm

randomguy wrote:If the US dollar dropped in half, how much more would you need to spend to maintain the same lifestyle? My german car would cost more, my Korean TV would cost more, my Mexican fruit would cost more, my Australian beaf would cost more, my Vietnamese clothing would cost more, and so on. And of course there are secondary effects (i.e. I can see my chineese iphone being more expensive. Realizing that all the network equipment is more expensive so my mobile bill goes up 50% is a lot harder to predict). Obviously at some point replacement goods become possible (US farming becomes profitable) but the idea of I spend US dollars so that is all I care about is very simplistic.


Given the normal ranges of USD vs. other currencies though, and the fact that the US economy as a whole is relatively closed (the British or Canadian or Japanese one is far more geared to exports and imports, for example), it's not a bad rule of thumb. I'd have to look it up, but the US economy is less than 10% net exports or imports (arguably the gross import number matters more, again I'd have to look it up as a percentage of GDP).

If Australian beef becomes expensive (amazed if that's where your beef comes from, in truth) then you eat US feedlot beef, or Argentinian, or you eat more chicken.

If German cars become expensive (remembering they are now assembled in Alabama?) then you switch to a car made in a Japanese transplant factory.

Clothing? How much clothing do retirees buy? Other than business suits, I spend less than $1000 pa on clothing and I am in full time employment. Shoes on top of that.

TVs? How many do you buy? One every 10 years? Apple makes such huge margins on iphones it would likely cut its margins rather than raise prices. Network operators-- capex is a relatively small proportion of their total costs (I have no idea, but I suspect Depreciation/ Sales is less than 20% and maybe less than 10%).

Etc. etc.

Travel is the big one. If you like travel abroad, the USD rate is quite important, unless you travel to USD zone countries (Canada, arguably, Mexico I guess, Central America etc.).

Valuethinker
Posts: 33398
Joined: Fri May 11, 2007 11:07 am

Re: Positive Aspect Of Currency Risk?

Post by Valuethinker » Mon Aug 15, 2016 4:11 pm

Random Walker wrote:Currency risk is way beyond my knowledge level, but heck I'm not going to let that stop me from commenting. Currency risk can go both ways, and if you expose yourself to it you are probably exposing yourself to additional diversification benefit, assuming you rebalance. In the long run currency effects are probably random but can provide some diversification potential.

Dave


I think it is generally held that currency volatility is uncompensated risk.

You get the risk, but not the reward. It is just volatility.

I'd have to surf around, but that seems to be conventional wisdom here.

FillorKill
Posts: 1007
Joined: Sat Aug 06, 2011 7:01 am

Re: Positive Aspect Of Currency Risk?

Post by FillorKill » Mon Aug 15, 2016 4:35 pm

One investors 'currency risk' is another investors 'currency diversification'.

I'm with GMO on this one: https://www.gmo.com/docs/default-source ... f?sfvrsn=6

User avatar
Doc
Posts: 7695
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Re: Positive Aspect Of Currency Risk?

Post by Doc » Mon Aug 15, 2016 4:35 pm

Valuethinker wrote:
Random Walker wrote:Currency risk is way beyond my knowledge level, but heck I'm not going to let that stop me from commenting. Currency risk can go both ways, and if you expose yourself to it you are probably exposing yourself to additional diversification benefit, assuming you rebalance. In the long run currency effects are probably random but can provide some diversification potential.

Dave


I think it is generally held that currency volatility is uncompensated risk.

You get the risk, but not the reward. It is just volatility.

I'd have to surf around, but that seems to be conventional wisdom here.


But in order to avoid currency risk and still invest internationally you have to accept some cost for the hedging. To me the whole idea of foreign investment is to gain diversity which means variance. Ideally you want that variance to have a co-variance less than 1.00. Hedging the currency risks not only defeats the main purpose of foreign investment which is diversity; not to increase return. Hedging actually defeats both. It increases the co-variance and it adds to cost.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

dabblingeconomist
Posts: 113
Joined: Wed Jul 13, 2016 8:42 pm

Re: Positive Aspect Of Currency Risk?

Post by dabblingeconomist » Mon Aug 15, 2016 5:19 pm

Suppose we want to match the effective currency composition of our assets with the projected currency composition of our consumption bundle. Then I'd argue that, from the perspective of currency risk alone, 100% US equities would be appropriate: they have enough international revenue that their foreign currency exposure easily exceeds the typical person's foreign consumption needs.

Any additional international diversification, although perhaps desirable for other reasons, would be adding too much foreign currency exposure.

If you're early in your career, however, then there is a case for greater international exposure. The idea is that at that stage, most of your assets are human capital (paid in dollars) rather than in your market portfolio. If you want your overall portfolio to have the right currency composition, then you should dial up your market portfolio to have very high international exposure. By this logic, the premise of this post holds up well, and heavy currency "risk" isn't really risk at all.

randomguy
Posts: 5027
Joined: Wed Sep 17, 2014 9:00 am

Re: Positive Aspect Of Currency Risk?

Post by randomguy » Mon Aug 15, 2016 5:22 pm

Valuethinker wrote:
randomguy wrote:If the US dollar dropped in half, how much more would you need to spend to maintain the same lifestyle? My german car would cost more, my Korean TV would cost more, my Mexican fruit would cost more, my Australian beaf would cost more, my Vietnamese clothing would cost more, and so on. And of course there are secondary effects (i.e. I can see my chineese iphone being more expensive. Realizing that all the network equipment is more expensive so my mobile bill goes up 50% is a lot harder to predict). Obviously at some point replacement goods become possible (US farming becomes profitable) but the idea of I spend US dollars so that is all I care about is very simplistic.


Given the normal ranges of USD vs. other currencies though, and the fact that the US economy as a whole is relatively closed (the British or Canadian or Japanese one is far more geared to exports and imports, for example), it's not a bad rule of thumb. I'd have to look it up, but the US economy is less than 10% net exports or imports (arguably the gross import number matters more, again I'd have to look it up as a percentage of GDP).

If Australian beef becomes expensive (amazed if that's where your beef comes from, in truth) then you eat US feedlot beef, or Argentinian, or you eat more chicken.

If German cars become expensive (remembering they are now assembled in Alabama?) then you switch to a car made in a Japanese transplant factory.

Clothing? How much clothing do retirees buy? Other than business suits, I spend less than $1000 pa on clothing and I am in full time employment. Shoes on top of that.

TVs? How many do you buy? One every 10 years? Apple makes such huge margins on iphones it would likely cut its margins rather than raise prices. Network operators-- capex is a relatively small proportion of their total costs (I have no idea, but I suspect Depreciation/ Sales is less than 20% and maybe less than 10%).

Etc. etc.

Travel is the big one. If you like travel abroad, the USD rate is quite important, unless you travel to USD zone countries (Canada, arguably, Mexico I guess, Central America etc.).


By the same logic, travel abroad is such a tiny part of the budget, it doesn't matter if it doubles in price.:) Or if you want to do substition goods, you see the grand canyon instead of paris:) And yes all beef comes from australia or a farm 30 miles from my house in my experience. And I know that means I shop at whole foods too much:)

Yes substition will occur but it is a lot more complicated than switching from a car made in Munich to one in Alabama. That Alabama car is using parts made in mexico, germany, japan, canada, and paying engineers in japan. Eventually the supply chain will adapt but how long it takes is hard to say. But lets say you have a product (say chickens) where the cost to produce doesn't change. What happens to the ability of the US to export chickens when their production costs drops? If in the past you were selling chickens for 2 dollars in the US and 2 dollars in china and you can now sell those same chickens for 3 dollars in china (cheaper price for the chinese consumer), you are going to export those chickens to meet the higher demand from cheaper goods overseas. US chicken price goes to 3 bucks even though the cost to produce hasn't changed And what happens when highly skilled labor starts heading overseas (i.e. imagine you could get an H1 type visa to work overseas as a programer/doctor and make 2x as much as you could working in the US) do you get rapid wage inflation in certain segments?

How that would all work out is beyond me to figure out but shoving 30% of your stocks into foreign currency seems like a reasonable hedge. Odds are it will never matter but why take risks when you don't have to?

User avatar
jose
Posts: 35
Joined: Thu Feb 05, 2015 3:19 pm

Re: Positive Aspect Of Currency Risk?

Post by jose » Mon Aug 15, 2016 5:51 pm

It is true that the currency of assets should be matched to the currency of liabilities. How to do that is not clear. There are two very common major misunderstandings:
1. Investing in domestic stocks gives me exposure to the domestic currency.
2. Spending in this country will generate liabilities in the domestic currency.

Those two assumptions are correct only if:

1. Domestic firms have zero assets or revenues in other currencies.
and
2. Zero spending will be done in imported goods or services (such as, but not limited to, travel).

So, investing in large multinational companies of any nationality will give you exposure to a wide variety of currencies. That is good from the perspective of diversification. Spending will also be done in a variety of currencies and that too is good from the perspectives of economic efficiency and freedom.

For example, the prices of oil and precious metals are denominated in US$, but still fluctuate with the value of other currencies relative to the dollar. If the dollar goes down, gold goes up.
If you invest in Ford, or BMW, in what currency are you investing? What percentage of assets are in $ or euros? What percentage of revenues are in $ or euros? I don't know, look at Ford's or BMW's 10k reports, but a lot is international, probably more than 50%.

This means that we all have a little currency risk whether we know it or not. It is an illusion that we spend or invest in our domestic currencies. Whenever you invest or spend, know that domestic prices are just a denomination of things that actually are in many currencies.

If you really want to invest domestically, you should invest only in very small, domestic companies. You cannot consume domestically. All of this applies to any country.

User avatar
arcticpineapplecorp.
Posts: 2358
Joined: Tue Mar 06, 2012 9:22 pm

Re: Positive Aspect Of Currency Risk?

Post by arcticpineapplecorp. » Mon Aug 15, 2016 7:48 pm

Random Walker wrote:Currency risk is way beyond my knowledge level, but heck I'm not going to let that stop me from commenting. Currency risk can go both ways, and if you expose yourself to it you are probably exposing yourself to additional diversification benefit, assuming you rebalance. In the long run currency effects are probably random but can provide some diversification potential.

Dave

Piggybacking...it's been shown before, but maybe for those who haven't seen it:
"Since 1983, a significant portion of international equity return has come from currency moves, which can be positive or negative."

Image
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

Random Walker
Posts: 2120
Joined: Fri Feb 23, 2007 8:21 pm

Re: Positive Aspect Of Currency Risk?

Post by Random Walker » Mon Aug 15, 2016 8:21 pm

Value thinker,
I guess you very well could look at currency risk as uncompensated risk. But that is only if you look at in isolation. The right way to look at an asset class or in this case a potential return driver, is how it affects a portfolio on the whole. A volatile asset class with low correlations can have positive portfolio effects even if it's returns are low. The classic example would be commodity futures. So, in this case, consider two international funds as potential additions to a US heavy portfolio: one fund hedges against currency risk and the other does not. I would propose that the unhedged fund would be a stronger diversifier and better addition to the portfolio.
Please note, I really have no idea what I'm talking about with regard to currencies! But I do think I have a pretty good feel for MPT and efficient portfolios. I do know that people argue over hedged versus unhedged international bond funds and there is strong reason to advocate unhedged.

Dave

larryswedroe
Posts: 15598
Joined: Thu Feb 22, 2007 8:28 am
Location: St Louis MO

Re: Positive Aspect Of Currency Risk?

Post by larryswedroe » Mon Aug 15, 2016 8:57 pm

Few thoughts, first most investors IMO get this wrong. Currency risk is not a one way street, but a two way street. And it reflects economic and geopolitical risks.

If your home currency depreciates it may be due to poor economic performance and/or high inflation. And falling currency leads to higher import costs which can also be inflationary. So doesn't matter if you are living in US and spending US dollars, rising import costs gives cover to domestic producers to also raise prices, less competition. And since if you're working you have your labor capital here in US and should desire to diversify that as well. If you don't take the currency risk in foreign stocks (hedging the risk instead as Tweedy Browne does) then you reduce volatility (at least historically) but you reduce the diversification benefits as you increase correlation with US stocks, and that is a bad thing. It's why most recommend not hedging currency in stock investing.

IMO you want currency risk in equity investing, though probably not in bonds where you want STABILITY as the main purpose of fixed income and here the currency risk increases the volatility.

Finally I would add this, historically one of the most persistently profitable trades is the carry trade in which currencies with higher interest rates have higher returns than currencies with lower rates (the interest rate parity theory doesn't hold except in theory). Simple answer is risk premium.

Hope that helps
larry

Rysto
Posts: 95
Joined: Sun Jan 09, 2011 5:26 pm

Re: Positive Aspect Of Currency Risk?

Post by Rysto » Mon Aug 15, 2016 10:05 pm

jose wrote:2. Zero spending will be done in imported goods or services (such as, but not limited to, travel).

Imported or exported goods. People always miss that one. Non-Americans are very happy to purchase Floridan oranges, Californian wines or Texas oil. If the US dollar were to plunge, those foreign buyers can all of a sudden afford to pay a lot more US dollars for those goods. With foreign buyers bidding up the price of US goods, domestic prices are sure to follow.

Valuethinker
Posts: 33398
Joined: Fri May 11, 2007 11:07 am

Re: Positive Aspect Of Currency Risk?

Post by Valuethinker » Tue Aug 16, 2016 2:16 am

randomguy wrote:
Valuethinker wrote:
randomguy wrote:If the US dollar dropped in half, how much more would you need to spend to maintain the same lifestyle? My german car would cost more, my Korean TV would cost more, my Mexican fruit would cost more, my Australian beaf would cost more, my Vietnamese clothing would cost more, and so on. And of course there are secondary effects (i.e. I can see my chineese iphone being more expensive. Realizing that all the network equipment is more expensive so my mobile bill goes up 50% is a lot harder to predict). Obviously at some point replacement goods become possible (US farming becomes profitable) but the idea of I spend US dollars so that is all I care about is very simplistic.


Given the normal ranges of USD vs. other currencies though, and the fact that the US economy as a whole is relatively closed (the British or Canadian or Japanese one is far more geared to exports and imports, for example), it's not a bad rule of thumb. I'd have to look it up, but the US economy is less than 10% net exports or imports (arguably the gross import number matters more, again I'd have to look it up as a percentage of GDP).

If Australian beef becomes expensive (amazed if that's where your beef comes from, in truth) then you eat US feedlot beef, or Argentinian, or you eat more chicken.

If German cars become expensive (remembering they are now assembled in Alabama?) then you switch to a car made in a Japanese transplant factory.

Clothing? How much clothing do retirees buy? Other than business suits, I spend less than $1000 pa on clothing and I am in full time employment. Shoes on top of that.

TVs? How many do you buy? One every 10 years? Apple makes such huge margins on iphones it would likely cut its margins rather than raise prices. Network operators-- capex is a relatively small proportion of their total costs (I have no idea, but I suspect Depreciation/ Sales is less than 20% and maybe less than 10%).

Etc. etc.

Travel is the big one. If you like travel abroad, the USD rate is quite important, unless you travel to USD zone countries (Canada, arguably, Mexico I guess, Central America etc.).


By the same logic, travel abroad is such a tiny part of the budget, it doesn't matter if it doubles in price.:)


I think for the retirees here, an affluent group on any measure, foreign travel is likely to be a significant cost.

Or if you want to do substition goods, you see the grand canyon instead of paris:) And yes all beef comes from australia or a farm 30 miles from my house in my experience. And I know that means I shop at whole foods too much:)


The AUD tends to track the USD in world markets (or rather, AUD tends to track natural resource prices and therefore swings a lot against USD).

But the general point is that a USD depreciation is reflected in the US CPI, and thus for example in TIPS returns and in US Social Security payments (and also general wage inflation, in the long run).

Yes substition will occur but it is a lot more complicated than switching from a car made in Munich to one in Alabama. That Alabama car is using parts made in mexico, germany, japan, canada, and paying engineers in japan. Eventually the supply chain will adapt but how long it takes is hard to say. But lets say you have a product (say chickens) where the cost to produce doesn't change. What happens to the ability of the US to export chickens when their production costs drops? If in the past you were selling chickens for 2 dollars in the US and 2 dollars in china and you can now sell those same chickens for 3 dollars in china (cheaper price for the chinese consumer), you are going to export those chickens to meet the higher demand from cheaper goods overseas. US chicken price goes to 3 bucks even though the cost to produce hasn't changed


The elasticities are never perfect. In particular, food retailers and consumers resist big price rises, and so the US chicken won't go to $3 in that scenario. Similarly US exports usually don't pick up as much as they "should" (if price elasticity were unitary).

And what happens when highly skilled labor starts heading overseas (i.e. imagine you could get an H1 type visa to work overseas as a programer/doctor and make 2x as much as you could working in the US) do you get rapid wage inflation in certain segments?


The ability of labour to move around between countries is generally much overstated-- I don't have stats on that but if you look at actual immigration even to the few "friendly" states (Canada, Australia, US up to a point) it's tiny as a percentage of the population. What can happen is outsourcing ie US becomes more competitive as a place to do design, programming etc. The people don't move, but the work can.

There is a degree of "onshoring" going on now. Companies have discovered that customer service centres need to be able to understand and be understood in the local accents and dialect. That the costs of managing and monitoring offshore production and offshore service centres are not always justified by savings.


How that would all work out is beyond me to figure out but shoving 30% of your stocks into foreign currency seems like a reasonable hedge. Odds are it will never matter but why take risks when you don't have to?


I am for diversification and since currency hedging adds to your costs, why take the pain? Empirically, 20-30% seems to get the best risk-return tradeoff for a US investor.

Because I don't sit in the USA I am very aware of home country bias, and I am not in favour of it (in equities). In bonds, the case for diversification internationally is to my mind much weaker, you either need to have 1). significant credit risk on your own country's bonds and/or 2). very low yields on your own country's bonds.

I think the main macroeconomic point is that the bulk of a USD devaluation will be felt in higher CPI for the retiree. With the important exception of foreign travel.

Post Reply