What To Own When the Dollar Collapses

Written By
Paul Tracy
Updated January 16, 2021

Ways To Benefit From The US Dollar Collapse

The US dollar price isn't just some nebulous concept that only concerns economists: It actually has a big effect on your everyday life. Any time the dollar price weakens or strengthens, your paycheck, the price of food and gasoline, interest rates on loans, and investments are all affected.

In fact, the strength of the dollar is a current reflection of how the US economy is doing. For example, the US dollar declined from 2002 to 2011, and it’s interesting to take a look back in time to see all the factors associated with this US dollar collapse.

While the impact of the ebb and flow of the US dollar has various effects on investments, there are plenty of ways to still profit from a weaker dollar.    

What To Own When The Dollar Collapses

Whether it’s the purchasing of foreign securities, buying a US stock, or even a certificate of deposit, investments are really like placing bets. 

If one makes an investment in an appreciating currency, the purchasing power of the value of their investment will rise without any price appreciation. If a depreciating currency is chosen, the purchasing power of that investment will fall unless it’s helped by interest payments or a rising share price. Bottom line: Half the battle is getting the currency right. 

Foreign Stock & Mutual Funds

One way investors can protect themselves from the dollar collapse is to buy overseas stock and mutual funds. Not only are investors able to capitalize on appreciation, but they’ll also receive a currency gain. Similarly, buying stocks in big American companies with significant sales abroad is another way to go. 

ETFs 

Another option is to buy an exchange-traded fund (ETF), which is a combination of investments including stocks, commodities, and bonds. ETFs trade on major exchanges like a stock and are less leveraged than trading currency directly (which lessens the risk associated with investing). There are a few different kinds of ETFs (e.g. bond, industry, commodity, currency) that can be purchased when the dollar weakens.

Commodities

Commodities are another great way to benefit from the falling dollar. Certain commodities (such as oil, gold, and other metals) preserve their long-term wealth. Most are purchased using US dollars so when the dollar falls compared to other currencies, commodities rise. 

Foreign Currencies

Somewhat of a riskier investment is the purchase of foreign currencies. While buying foreign money outright is possible, a more practical (and easier) method is to buy a currency mutual fund or an EFT with specific foreign currencies, like the Euro or Australian dollar. Just remember that currencies can take sudden dips. 

Foreign Bonds 

While it can be extremely difficult to purchase foreign bonds directly, a more practical route is to buy them through either a closed-end fund or an ETF. The choices vary widely, and investors can buy a fund focused on either bonds or stocks from developed countries or emerging market countries (or a mix of both). Either way, this type of investment is valuable: If the dollar falls relative to the currency that a fund's holdings are in, the price of these holdings will rise, thereby protecting the dollar investment.

Foreign Stocks 

Additionally, investors can purchase foreign stocks, which can be done in a variety of ways. The easiest way is to purchase a fund that buys foreign stock directly. Both closed-end funds and ETFs offer investors a quick and easy method. The options offered are numerous and can include stocks in developed markets, stocks in emerging markets, growth stocks, value stocks, and dividend-paying stocks. 

If an investor wants to buy foreign stocks directly, they can purchase either the actual foreign shares of companies or their American depositary receipts (ADRs). Some major foreign companies offer ADRs, which trade on U.S. stock exchanges and provide an easy way for American investors to buy shares without engaging in cross-border transactions. 

Even though the ADRs trade in US dollars, they will also rise and fall in value based on the exchange rate between the dollar and the stock's home currency. So if the US dollar falls, investors will see a rise in ADR share price.

Example of Buying Foreign Stocks

Investors can also choose to buy foreign shares directly in the company's home market. For example, let's say you buy 100 shares of Company XYZ on the Tokyo Stock Exchange for 5,000 yen per share. If the exchange rate at the time of purchase is 100 yen to $1, your investment costs $5,000. 

Say you hold this stock for one year, during which the dollar falls to an exchange rate of 80 yen to $1. Even if the share price stayed absolutely flat, your investment would be worth $6,250 in dollar terms – a gain of +25% from currency exchange alone!

REITs

Companies in real estate investment trusts (REITs) typically own income-producing properties such as apartment buildings, and they sell shares to the public either direct or through a mutual fund. Not only are REITs one of the most powerful ways to invest in real estate, but they are likely to still offer a predictable revenue stream even with a dollar collapse. 

Maximizing US Dollar Price Through Investments

As you can see, there are a variety of options on what to own when the dollar collapses. Even though it can be hard to predict US dollar devaluation, the key is having insights into how and why currency changes. For related reading, check out our Beginner’s Guide to Forex Trading.

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about What To Own When the Dollar Collapses.
Be the first to ask a question

If you have a question about What To Own When the Dollar Collapses, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about What To Own When the Dollar Collapses, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about What To Own When the Dollar Collapses

By submitting this form you agree with our Privacy Policy