“Why You Should Diversify Your Portfolio Outside the U.S. Dollar”

Cole Stevenson

Business Economics

Missouri Baptist University

When investing, knowing the economy is crucial. This paper begs the question, what does it mean to “Diversify your portfolio”? After all, that is what we have all been told our entire life. It is the first lesson one learns in every financial education class; the concept that we all need to “diversify our portfolio”, “not put all our eggs in one basket”, “have stocks, bonds, cash, and CD’s”, etc. This is the standard route to financial success and I have not come across many people who would argue that position. As a matter of fact, I would not argue that we should not diversify. Actually, my point is just the opposite. We need to have more diversity. You see, the question begs, just how diverse are all of those things? Do they not all depend on one sole currency? If I were to sell my stocks, I would get dollars in return. When I cash in my bonds, I will get dollars back. When my CD’s reach maturity, what do I get out of it? You guessed it, dollars. This points to the plain and simple fact, that we need more diversity outside of the U.S. dollar. Precious metals and foreign currencies make that possible. James Cooper wrote in the “Business Outlook”, “Since the greenback's peak in early 2002, it has dropped 35% against the euro, 28% vs. a trade-weighted basket of major currencies, and 18% vs. the currencies of all countries the U.S. does business with.” He then goes on to explain a very valid concern, “…the huge U.S. current account deficit, that gap, comprising mainly the U.S. trade deficit and some other financial transactions, has ballooned to an annual rate of just over $900 billion, or 6.8% of gross domestic product. At that level, the U.S. must attract some $75 billion in foreign financing