Good Investments - 2
By Saghir Aslam
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live with dignity and fulfill their moral obligations towards charitable activities)
Through the Lehman collapse, the Japanese tsunami, various iterations of the euro zone crisis and the recent mini-rout in emerging markets, the dollar index (measuring the US currency’s value against a basket of other currencies) has either declined slightly, or strengthened. When the world looks a dangerous place, the better the devil you know-and know that you can sell.
The dollar isn’t the world’s only haven currency. The Swiss franc fulfils a similar function as, until recently, did the yen. But the Japanese currency has weakened as a result of the new prime minister’s reflation policies, while the Swiss central bank has said it will step in to stop the franc becoming too strong.
It seems only a matter of time before more unconventional monetary policy is launched in the UK and Europe. That leaves the greenback as the world’s reserve currency.
America’s so-called “exorbitant privilege” isn’t the only reason to believe in the dollar, though. The US economy is further along the path to recovery than our own, because it has sorted out its banks, allowed its property market to correct, and discovered cheap shale gas, which is boosting domestic manufacturing.
A recovering US economy will one day lead to higher US interest rates, and higher rates tend to mean stronger currencies. Rates aren’t going to rise any time soon, but the direction of the next move is pretty clear-and that’s before you allow for more policy to cheapen sterling.
Making money from a stronger dollar/weaker pound isn’t as easy as it appears, though. I would be very wary of all those online services that allow you to trade foreign exchange and use leverage to turn small movements into big profits (or, more likely, big losses).
Investing in US shares or bonds-or funds that own them-is an easier way to profit. But other things may cancel out gains made as a result of the rising dollar. As markets factor in future rate rises, bond prices are likely to decline. There are concerns that US corporate profitability cannot rise much further, which might mean shares are overvalued meantime U.S markets have not new height. A week after week all major markets, all indexes such as low – NASD or S.P. It’s been one of the best 2013 will go into the history as shining star. All markets how they would perform in 2014. It will be different to let alone. But there are also companies listed here in UK that use the dollar as an accounting currency, including the declaration of dividends which are then more generous in sterling terms.
It’s probably not a good idea to invest in a company on the basis that exchange rate movements might give your dividends a boost, but the good news is that there are so many of these companies – over 40 percent of the FTSE 100 by market value, including groups such as Shell, HSBC and GlaxoSmithKline – that you own of them already. May some beating 2013 even matching 2013, may be impossible.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)