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Sad times for the dollar

It may be time to invest in a foreign currency account. But be careful.

By Helen Huntley, Times Personal Finance Editor
Published September 30, 2007

The dollar is in the dumps, with the Canadian dollar trading at parity for the first time in more than 30 years and the euro at an all-time high. Is it time to jump on the bandwagon?

Maybe, but you'd better be careful about it.

"The dollar will continue to lose ground," predicts Chuck Butler, currency analyst at Jacksonville'sEverBank. "We're going to have a hard time attracting financing from foreigners if our deposit yields are going down."

EverBank (www.everbank.com) offers CDs and money market accounts in more than a dozen foreign currencies and baskets of multiple currencies. You get whatever interest rate the account pays (which varies widely) plus or minus the currency gain or loss. While your deposit is protected by FDIC insurance should the bank fail, you aren't protected from currency loss.

Since currencies fluctuate, the risk is always something to keep in mind. Butler says you should never put more than 20 percent of your net worth into a foreign currency investment. I'd say 5 percent, but then I'm pretty conservative.

Economist Thomas Berner of UBS Wealth Management Research expects the dollar to be weak in the short term but to appreciate over the next year. His view is that Europeans won't be happy with the euro being valued so highly that Americans won't or can't buy European goods.

Nevertheless, Berner thinks foreign economies are stronger than ours and suggests investing in foreign stocks or in U.S. stocks with substantial foreign exposure. He was in Clearwater last week speaking to chamber of commerce members.

The one thing you don't want to do is get caught in a foreign currency trading scam like the one the Commodity Futures Trading Commission accused Pinellas County resident William Folino of running a few years ago.

Through his "Investors Freedom Club," Folino and his associate George Belanger enticed about 150 people into trading Forex (foreign currency futures) with promises of returns as high as 100 percent with little or no risk of loss, the commission said.

While some of the funds were traded, Folino was accused of misappropriating others for his personal expenses. A federal judge ordered him to pay more than $2.3-million in restitution and Belanger to pay $120,000.

As with any investment, promises of high yields with low risk are a warning flag. This area is especially dicey because many companies that offer currency trading online are not in the United States. You can check out companies through the National Futures Association (www.nfa.futures.org), but most investors should just stay away from "opportunities" in futures trading.

[Last modified September 28, 2007, 19:26:12]