Everyone needs “currency insurance”
The unexpected July collapse of the loonie suggests that everyone should have some currency hedging built into their portfolio. It can take the form of U.S. stocks or equity funds, foreign bond funds, Canadian preferred or common shares denominated in U.S. dollars, U.S. dollar GICs, or whatever. The weighting may vary from time to time, but there should always be a core position held in non-loonie denominated securities. The greater your current or future need to preserve international purchasing power, the higher the percentage should be. For example, snowbirds who regularly spend part of the winter in the Sunbelt may find they have to curtail the length of their visits if they don’t have adequate currency protection.
This is not currency speculation. Rather, think of it as a currency insurance policy. As last week’s events proved yet again, there is no way of knowing how the Canadian dollar is going to fare from one week to the next. The best you can do is to partially insulate yourself from these gyrations.
Adapted from an article that originally appeared in the Internet Wealth Builder, a weekly e-mail investment newsletter that features some of Canad#8217;s leading stock market experts.