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Why a weak dollar is good for your investment

Illustration to an article entitled Why a weak dollar is good for your investment

Image: Andy Dean Photography (Shutterstock)

As economic struggles, was a rough month for the US dollar. Our currency may be on track for the weakest month in nearly a decade, according to Wall Street JournalTwo things caused the recent decline: Our coronavirus epidemic and low interest rates from the Federal Reserve.

As a result, investors are selling the US dollar and buying other currencies in places with lower levels of contamination. While a weak US dollar can be expensive when traveling abroad, Money againports may be good for your investment portfolio – that’s why.

How a weak dollar affects US stocks

As the US dollar declines, American products become cheaper abroad. This creates more competitive prices for companies that sell products elsewhere. For example, when an American company creates a $ 2 product and sells it for $ 1.85 in another country, the cheaper price generates more demand.

According to Money, some of the companies that will benefit may already be part of your portfolio – such as those in the S&P 500. A weak dollar could have the biggest impact on US companies operating abroad, such as technology companies. to companies focused on home business – such as utilities or telecommunications companies.

How a weak dollar affects foreign stocks

There is more good news: a weak US dollar can also have a positive effect on foreign investment in your portfolio. When you buy foreign investment, you invest in two things – foreign stocks and foreign currency.

When you own foreign stocks and the US dollar weakens, you do get a boost from the return of the possession of the foreign currency. This means that you get a profit when the currency is converted back into US dollars.

What to expect in the future

Unfortunately, no one can predict how the US dollar will be exchanged in the future. But if we continue to fight coronavirus infections – and the government stimulus continues – experts say the US dollar could remain weak for some time.

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