Letter Re: Investing in Foreign Currency CDs

Today the dollar posted its largest one-day decline against the euro since that currency was created.

I am rebalancing my investment portfolio to account for the market’s recent gyrations – and the fact that our government is attempting to make the dollar even more worthless than it currently is. Several years ago I was in a similar mood and found EverBank, a bank that issues a number of CD products tied to foreign currencies (effectively getting your saving out of dollars into something that’s not dollar-denominated).

I am not preparing for a complete meltdown or the end of civilization: I am preparing for a prolonged economic depression. My main goal is to preserve the value of my capital while earning at least some return on my investments. My investment portfolio is modest, but large enough that I can’t practically or safely (from a diversification standpoint) convert it into tangible assets. I have as much gold and equities as I’m comfortable holding, so I am looking for safe places to spread my remaining cash. At least to some extent, I’m going to use world currencies to do this. They could very well get dragged down in a global depression but in any event would probably fare better and recover faster than the dollar.

EverBank’s site for the CD products offers both single-currency and multi-currency CDs. Any readers with investment portfolios large enough to truly diversify should take a close look at one or more of these products.

One more thing… When choosing to deal with an unknown bank, make sure they are FDIC insured by using the FDIC’s bank finder: Whether the FDIC will even exist in coming years is debatable, but at least if an institution is FDIC insured, you know it’s not a bunch of Nigerian “419” scammers with a fake bank-like web site. The FDIC does insure CDs denominated in other currencies, but does not protect against a rise in the value of the dollar against your chosen currencies. That is, much like SIPC [Securities Investor Protection Corporation] insurance, the FDIC protects you against malfeasance on the part of the bank but not against investment risk. Best, – Matt R.

JWR Replies: Although I advocate in investing tangible barterable first, I do recommend diversifying out of US dollar-denominated investments. Everbank has a good reputation but keep in mind that there is risk when investing with any fiat currency. (In our generation the national currencies are all unredeemable for precious metals and they all suffer, from one degree to another to the gradual gnawings of inflation.) The best time to transition from dollars to another currency is naturally when the dollar has a short term spurt of strength. Watch the US Dollar Index (USDI) closely, and dump your dollars during a good week. (The recent dollar bounce, for example, was a good opportunity. There will likely be others, but in my estimation the USDI is headed south of 72 soon, and the dollar might remain relatively weak for many years.