Hedge Your Bet

The US dollar has fallen 25%against the euro and 16% against theyen since January 2002. Many point tothe rising US trade deficit of over $600billion as the culprit, along with lowinterest rates, which have caused fixed-incomeinvestors to go to countries withhigher rates. Foreign investors have alsokept their money at home as the decliningdollar hurts returns by decreasingthe value of dollar-denominated assetssuch as US stocks and bonds. There area number of ways investors can helpcurtail the dollar drag.

One option is to purchase CDs thatare denominated in foreign currencies.They can be bought online via Everbank(www.everbank.com). Caution: Use thisstrategy for only a small portion of yourportfolio. You can lose money should thedollar move up. Another strategy is to useemerging-market bond funds, which havegained 32.5% over the past year. One ofthe top-ranked choices is the PIMCOEmerging Markets Bond (800-927-4648), which is ranked in the top 20% ofits class. A better long-term investmentchoice to keep your portfolio diversifiedagainst the fluctuating dollar is an internationalstock fund. Strong examples areVanguard International Explorer andJulius Baer International Equity.