For all the noise about the US dollar over the years, its impact on our dollar-denominated assets has been far less dramatic than many assume. In fact, some of my investors worry more about the dollar than the dollar actually worries about them.
Currency markets are notoriously hard to predict. Fundamentals, sentiment, momentum and you can throw them all into the blender. Then add policy decisions by governments and leaders who are often less predictable than the weather forecast, and what you get is less a science and more an educated guess on a good day.
This uncertainty has led many investors to hedge through futures and options. Others, tired of chasing forecasts have taken a more practical route. Decide upfront how much of the portfolio should be exposed to currency risk, and then stop losing sleep over every wiggle in the exchange rate.
A simple rule of thumb: do not take on currency risk when the same asset class is available locally. Save your FX battles for when they actually count. The real exceptions are dollar-based alternatives that deliver genuine diversification and attractive risk-return profiles even in times of stress.
The alternative investment strategies we represent fall squarely into this camp. They justify the currency exposure because they add real value, not just background noise.
So, should investors fear the dollar? Not really. Currency will always fluctuate, that is its job. The real question is whether your underlying investments can deliver long-term returns strong enough to drown out those fluctuations. Do not let the dollar’s mood swings distract you from the bigger picture.