What to Buy as the Dollar Rises

Investing options to consider

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Over the past nine months, the relative strength of the U.S. dollar has created a boom for some asset classes and a bust for others. Late summer 2011 was a pivotal point when the dollar’s strength wreaked havoc on traditionally uncorrelated asset classes like equities and gold.

Historically speaking, the value of the U.S. dollar had been propelled by consumer spending and stock prices, but with a still- struggling economy here stateside, the volatility of the dollar has another culprit to blame: Europe. Because of Europe’s debt woes, many have flocked to the relative safety of the dollar, completely distorting the value of some asset classes. In the short- to mid-term, this upward trend may continue as Europe attempts to sludge its way through its herculean problems. (Note: The long-term trend does not look so rosy for the dollar, however.)

This trend of dollar strengthening may give you the opportunity to multiply your greenbacks while the getting is good. Here are some smart investment ideas that may do well under a strong dollar:

U.S. equities. Traditionally, equities have risen alongside the dollar, but that relationship has deteriorated. It’s best to focus on U.S. companies that focus on importing, not exporting. Companies that heavily import can buy their goods at a discount because the dollar is so strong.

Foreign equities. Companies and countries that are heavily reliant on exporting to the U.S. may be attractive as U.S. importers buy more and more goods because of the strong dollar. Specific emerging markets with export exposure should be the best approach (Indonesia, South Korea, Chile, etc.).

Buy the dollar/short the euro. You can invest in ETFs that track almost anything these days, and going long the dollar/shorting the euro is completely possible for investors without FX experience (currency traders). While these ETFs are far from perfect, this is an option for the purists at heart.

Short gold. While this trade could certainly “get away from you quickly,” shorting gold certainly is an option in the short term and as a hedge against further erosion in gold prices.

Dig out your passport. My favorite idea? Take a trip to Europe!  With a stronger dollar, your money goes farther in places like Italy, Germany, Greece, and Spain. Take a bucket-list vacation while it’s on sale!

Robert Russell is CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and is a frequent contributor to FOX Business and CNBC.

Securities offered through Kalos Capital, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100.  Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.