finance proz

April 18, 2008 9:12 AM

Short-term investments question: In your opinion, what stable foreign currency should I invest my money?

I am new to investing and was looking for some other opinions\ideas on which currency to convert my money into today and convert back to the US dollar, in say...6 months.

posted by goldism to work & money (11 comments total)

I think this kind of thing is best reserved for the big boys, like people who manage mutual funds. You will pay exchange fees both ways, buying and selling, so that would eat into your profit, not to mention that you could bet "wrong" and lose money. Plus you;'d have 2 ponies involved, the USD plus whatever other one you're buying. If the other one goes up but so does the USD, there goes your profit.
posted by Penelope at 9:24 AM on April 18, 2008

Playing games with currency isn't investing, it's gambling.

The giveaway is "short term." Long-term investors (retirement, etc) should definitely diversify out of the US, but over the short term you just increase your risk.
posted by Leon-arto at 9:28 AM on April 18, 2008

Six months isn't a long time. Unless you are transferring big bucks, you are going to be paying lots more money in commission fees than you will see in actual profit. Otherwise, the Euro is still going strong and if it's trend continues then you will $0.20/dollar in another six months. Of course that is a gamble.
posted by JJ86 at 9:29 AM on April 18, 2008

Even the greatest of seers can't predict currency fluctuations, which defy attempts to see further than a few minutes into the future. Witness George Soros, who lost a mint on a bad speculative play on the yen.

However, there is a way to invest in currency. Buy foreign stocks, or better yet, Global or Emerging Market mutual funds. When the dollar drops, these funds tend to go up in value (assuming the value of their underlying equity positions remains the same).

The dollar has slid considerably, so I wouldn't put my money in foreign funds just yet. But you may feel differently.
posted by Gordion Knott at 9:38 AM on April 18, 2008

iceland
posted by Salvatorparadise at 11:37 AM on April 18, 2008

First, no one new to investing should trade currencies. Ever. At all. There are no exceptions. So, in my opinion, the answer to your question is "none."

Even if you do, you don't trade in currencies like the way you are discussing, and the way that JJ86 mentions. You trade in them buying complex options, futures or other financial instruments. These instruments have the effect of significantly increasing leverage, so that you can make or lose many times what you are putting up and many times the actual relative movement of the currency. Again, these are not appropriate for a new investor at all.

And, even if it were appropriate for you to engage in currency speculation, are you really that sure that the dollar will continue to fall against whatever currency you would buy? You should look into learning the basics of investing and then start with something else. If you want some nice, risky, could make a ton of money type investments, you will find many among regular old stocks of US companies. Many have been so severely beaten down that there are many gems.
posted by iknowizbirfmark at 11:46 AM on April 18, 2008

Iceland would be a bad move.

...seriously though, currency speculation is just ridiculously risky.
posted by aramaic at 11:51 AM on April 18, 2008

Nthing the "no currency" suggestions. You may as well buy gold if you're interested in gambling this way.
posted by Cool Papa Bell at 12:01 PM on April 18, 2008

Nthing the risky gambling/speculation warning.

Besides currency options, you can buy ETFs that are basically like buying the foreign currency you think is a good investment. Much less risky than options or futures.

Short term investment? CDs, money market, or a savings account if you want your principal back.
posted by Daddy-O at 12:11 PM on April 18, 2008

Without getting into the whys or why nots of foreign currency exchange, I thought I'd at least offer a method of getting into it, without getting completely gouged by commissions. I'd agree with the upthread posters about this being a very unwise investment for an individual, and there's never a good time for a novice to get involved. But... if you're stubborn enough comfortable with an inappropriate level of risk, and you're not squandering away funds that you can't live without, here's one way to do it...

A while back, Everbank started offering foreign-currency CDs (other banks may do this too, I just happen to be familiar with them). You earn varying amounts of interest, depending on the currency involved, and Everbank will hit you with "up-to" 1% of spread on the currency exchanges, each direction (which, in bankerspeak, almost always means "exactly 1%". They'll buy the currency at the spot rate, then sell it to you at spot + 1%. Later, they'll buy it back from you at spot - 1%, and sell it on the exchanges or to another bank customer). The funds are held in the US, and are FDIC insured, just like any other CD. Of course, there's no insurance against loss in value due to currency exchange rates.

Assuming a $10k investment, you're going to lose about $100 when you buy the CD (you'll see this as the difference between the published spot rate of exchange and the actual rate that Everbank gives you). (Assuming a profit) you'll lose a little more when you convert back to dollars; it'll be about 1% of your account's value when you convert back.

So, as long as your CD earns more than ~2% above a US based CD in your timeframe, then your commissions aren't really going to crush the profits you're hoping to earn through the continued fall of the US Dollar. Of course, a rebound in the US dollar or decline of the foreign currency could wipe your profits out in a trivial amount of time -- and the nature of a CD doesn't allow an investor to (inexpensively) pull out early if things start going to shit.

That last sentence should worry you. If you want to make an investment that pays off for you if the US economy continues to slide into the shitter (especially in the short term), you'd probably be better off shorting the S&P 500, by way of an ETF and a simple brokerage account.

This isn't investment advice. I am not your anything.
posted by toxic at 12:26 PM on April 18, 2008

And the answer is......the U.S. Dollar.

But, seriously, get a six-month CD, money market, or even just a run-of-the-mill high-yield savings account. In this market, that's your best return short-term. Longer-term: stocks. Longer than that term: treasury bonds.
posted by General Malaise at 12:27 PM on April 18, 2008