4 exotic investments for diversification

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The U.S. Dollar Index, which measures the greenback's value against six major currencies, recently fell to a 14-month low. That move provided hefty profits for investors in other currencies. There are several ways to invest in foreign currencies.

The safest would be to invest in a diversified foreign stock or bond fund that doesn't hedge its currency risk. You can use a standard mutual fund or an ETF. Because the fund is unhedged, when the currencies of the assets in the fund rise against the dollar, you should experience a positive effect on your return by the same amount.

You also garner whatever returns (or losses) are achieved by the underlying assets.

More advanced investors can consider ETFs that are based on foreign currencies themselves. These funds invest in foreign money markets, but you shouldn't view them as the equivalent of U.S. money-market funds.

The returns of these currency funds will depend upon interest rates overseas, and the dollar's move against whatever currencies are being used in the fund. If the currencies rise against the dollar, the funds will have positive returns. If the currencies fall against the dollar, you will lose money, unless the dividends you earn from the underlying fund assets exceed the currency loss.




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