Investment Strategies for a Declining Dollar

I have often written about the declining value of the dollar over time, as inflation (even a small amount) consistently erodes away at the dollar's purchasing power.  One of my favorite charts below from Shadowstats shows this pretty clearly.  The dollar's value does fluctuate with demand and can go up in the short run, but the long term trend has been consistently lower.  Most recently, when the COVID-19 pandemic began and the world's financial markets were in turmoil, there was huge demand for dollars as a "safe haven," but then as massive fiscal and monetary stimulus was unveiled, the dollar started to drop again over inflation fears and that decline has accelerated recently.  There have been many indicators of investors' concern about this, including the rise in value of precious metals, Bitcoin and the stock market.  What's interesting is that the bond market so far has not shown any signs of inflation concerns, but I believe this has more to do with the Federal Reserve's purchasing of bonds, which artificially suppresses interest rates, as well as "safe haven" demand from investors who have reduced their exposure to the stock market.  

We all know that interest rates are extremely low so holding cash in a bank, savings or money market account doesn't pay much these days (1% or less) and has typically trended below the rate of general inflation (most recently 0.6% overall, but food is rising at rate of 4.5%).  However, having no cash is not a smart move because an emergency fund is important, especially in today's environment of job insecurity.  Even if we didn't have to deal with looming unemployment, life always throws you a curve ball like unexpected car repairs and other surprises that require cash.  But assuming you have an adequate emergency fund, what are some areas to invest extra cash that would be a good idea in today's declining dollar environment?

Bitcoin tops my list as a great investment in this environment for the simple reason that it is in limited supply, is well known and has the largest market capitalization by far of any of the other digital currencies.  Although very volatile, Bitcoin represents the future of money as an investment, store of value and transaction currency.  Indeed, many countries who have experienced hyperinflation in recent years like Venezuela are seeing a big increase in Bitcoin use for daily purchasing activity.  If you hold and don't "trade" Bitcoin, over time you will be rewarded as this asset, unlike dollars which can be "printed," is expected to hold and increase its value by design.  It's also very easy to transact and store, as compared to gold and silver.  If you're interested in learning about a good strategy for investing in cryptocurrency see my prior post here and follow my crypto updates (most recent one was posted last week here).

Gold and silver are also good investments in this environment for a long-term investor.  I prefer to buy and hold physical coins, but you can buy exchange traded funds (GLD, SLV) which are another way to invest.  I do worry about "hot money" moving into this area, which temporarily pumps the price, making it unsustainable and causing a short term crash.  Silver did this not too long ago when it went from $10/oz to $30/oz and then crashed back down after the speculators dropped out.  Now silver is again making a run at $30/oz.  If you can afford to be patient and hold long term, however, gold and silver can be very rewarding as the long term trend in the dollar will always be a backstop to their value.  If you're interested I wrote a very concise book in the subject and it's available here.

We should also not forget about investing in stocks, especially the blue-chip companies that pay a dividend and that have mostly missed out on the recent stock market rally that favored large technology stocks.  In many cases the dividend alone is 2x - 6x higher than the interest you can earn a high yield savings account, plus you get the capital appreciation over time which no doubt will be enhanced again by the declining value of the dollar.  One thing to remember is that for multinational companies headquartered in the US, a weaker dollar allows them to be more competitive making their products cheaper and boosting their sales.    

For safety, I prefer large cap blue chip stocks that have been paying and consistently growing dividends over a long period of time, while outperforming their industry, but have not been recognized yet by the market (i.e., with a low forward price earnings ratio).   Because of the disruption in the markets caused by COVID-19, there are plenty of stocks that meet this criteria.  I ran a quick screen with this criteria and generated a list that included Johnson & Johnson, Bristol Myers Squibb, 3M, CVS, Chevron, General Mills, Lockheed Martin, General Dynamics and many others as shown below.  I am not recommending any particular stocks or investments here, but providing you with overall strategy ideas and you will need to do your own "homework" and assess your appetite for risk as part of the investing process.

Stay safe, healthy and positive.  I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2020.  

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