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The falling dollar, inflation and your retirement

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Protect your portfolio
What can you do to help protect your portfolio against the falling dollar? One way is to maintain exposure to international stocks and bonds. Trotter recommends foreign currencies, which his bank offers, in the form of money markets and CDs. Check the yields on EverBank's foreign currency CDs and you'll see that some countries offer better returns than you'd get with a U.S. bank CD. But do your homework before investing or you could lose principal.

"Don't look at the list and go for the highest yield," Trotter says. "Iceland has an eye-popping rate, and if someone says 'I'm going to earn 12 percent on this,' they could be in for a big surprise. It's a small country with a volatile currency, and it's always subject to ratings changes by Standard & Poor's.

"Our viewpoint is that you should build a portfolio of three or four of the major currencies," he explains. "Pick something out of Asia -- maybe Japan or Singapore -- Europe, Sweden, Norway and the South Pacific, like Australia. That way you're diversified against any one sector's change, and you're not in a currency that's likely to have a precipitous drop based on some small event."

EverBank's CDs are Federal Deposit Insurance Corp.-insured, but that's against bank failure, not a deflating currency. There's considerable risk in currency movements and you can lose principal.

EverBank's foreign currency CDs
Everbank's foreign currency CDs

A different international view
Flurry agrees that international exposure is needed but believes it should be in stocks and bonds. "Currencies and gold are a zero-sum game because they don't produce anything. With currency, it's just speculation. If our currency goes up in value, it means somebody else's went down in value. The next time it might go the other way. It's not like anything was really produced; it's just prices and value that have changed. They will change again. So, trying to predict that and make investment decisions on that is just pure speculation.

"You definitely need overseas exposure," he says. "The percentage depends on how conservative or aggressive you are. There are three factors in this model and they're the same whether they're U.S. stocks or overseas: How much exposure you have -- how much of the portfolio is in stocks versus bonds, for instance. How much of it is in large companies versus small companies. And how much is in growth companies as opposed to value companies."

Flurry says, traditionally, about 15 percent of a portfolio should be in foreign investments. That said, he advises conservative investors to put no more than 5 percent to 7 percent of their portfolio in overseas investments; while people who have a higher tolerance for risk might want to go out as far as 20 percent.

Next: "We can expect the downward trend to continue ... "
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