Australian Dollar (A$) falls: Why I just doubled down on the US Dollar ($)

The Australian Dollar (A$) (AUDUSD) slumped overnight against the US Dollar ($), but it could continue lower.

Australian Dollar


Source: Google Finance

The Aussie dollar has been on a downwards trajectory since 2011.

However, with more talk about a slowdown in the Australian housing market and resources industry, together with a much stronger US economy, I think there are many risk benefits by diversifying abroad.

What does that mean?

We’ve all heard of diversification. Don’t put all your eggs in one basket…blah, blah, blah.

But what most Aussies underestimate is the risk benefit from investing abroad. According to a recent survey by the ASX, just 8% of us invest overseas.

So, most people have zero exposure to overseas financial markets outside of super.

But let’s think about it, what happens if the local housing market really slows down? What happens if the China-dependent resources sector continues to fall?

You are exposing yourself — and your a family — to a potentially massive risk that could be significantly reduced just by putting some of your money overseas.

Aside from the risk, there is the obvious growth potential from investing abroad.

More than 98% of investment opportunities are outside Australia.

For example, just imagine if you were one of the smart cookies who stuck your money in the US dollar back in 2011. You would be up around 40% for otherwise doing nothing.

But, chances are, it would be earning something. So imagine if you bought an exchange traded fund (ETF) that tracks the USA’s S&P 500. The S&P 500 is up 86% in that time not including dividends — in US dollars.

The other alternative is to buy quality Australian-listed shares with overseas exposure. Companies like Cochlear Limited (ASX: COH) and CSL Limited (ASX: CSL) are prime examples. However, they look expensive at today’s prices.

Foolish Takeaway

This morning, I transferred more of my money to my family’s US stockbroking account. I use OptionsXpress. I’ll admit it can be a bit of a pain in the you-know-what to open a US broking account, but there are significant benefits to doing so.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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