What Percentage of My Assets Should I Hold in Foreign Currency?

Using foreign currencies to protect your assets has long been a favorite option of investors. Wealthy individuals use this diversification tactic to protect their properties from the possible value fluctuations of the U.S. dollar. While there's no magic percentage or ideal currency to invest in, there are definitely a few basic ideas that you can adhere to that make holding foreign currency a bit more sound.

Choosing an Amount

Ideally, investors who use foreign currencies invest in them as a percentage of their net worth. We are not investment advisors, but when our clients ask we generally recommend that they put around 10 to 20 percent of their assets into international currencies. This is a sound number that usually provides you with a nice buffer to hedge your exposure without putting a significant portion of your assets out there. The goal of this kind of foreign currency investing is to protect your assets, not make a killing on currency trading, so it's OK to play it safe.

Choosing a Currency|

Remember that foreign markets and currencies are subject to fluctuations in their own right. It is worth noting, however, that certain currencies are a bit more stable.

Reserve currencies, which are those commonly held by institutions and governments as part of their forex reserves, are usually safer. Currently, these include currencies like the Swiss franc, the Canadian dollar, the New Zealand dollar and the Australian dollar.

Reserve currencies change over time. For instance, the British pound stirling was once a major reserve currency and some predict that the euro may become one around 2020. Other popular currencies include the Singapore currency and the Brazilian real, which reflects the current strength of Brazil's economy.

There are many ways to protect your assets through diversification and smart estate management. Visit www.nagellaw.com to learn more.