Currency Movements And The Effect on Retirement Plan Investments

Currency Movements And The Effect on Retirement Plan Investments

The comments below are an edited and abridged synopsis of an article by Mari Tsagareishvili

From mid-2011 to late 2016, investment gains from foreign stocks and mutual funds invested in foreign stocks were muted by a39% surge in the US dollar. Thus, investing in international markets became less appealing for the US-based investor. The US dollar is the global currency, and any significant change in its value ripples throughout financial markets. Despite the dominance of US stocks during the 7-year period of the strong dollar, there are many compelling reasons to remain invested in international stocks as part of a well-diversified retirement portfolio.

After prolonged appreciation, the weakening US dollar is likely to provide a boost for international investing as well as for domestic equities. While the weakening dollar presents some risks, Tsagareishvili believes it will bring more positives than negatives. Over the next decade, a meaningful allocation to international equities may improve overall equity returns. Given the acceleration in growth outside of the US and more attractive valuations, the case for international equities is particularly appealing now. The tailwinds from the weaker US dollar may create greater returns from investing internationally.