Global Investing with a weak pound

cagey76

mr_fishbulb wrote: »

Commodities are priced in US $s and I'm guessing you will be buying and selling in GB £s.

Exchange rate between the two was very volitile in 2008 so you need to take this into account or at least be aware of it.

For example I bought some gold in Feb 2008 when it was over $920 an ounce and there were almost $2 to the £. Now Gold is $875 an ounce but there are under $1.5 to the £ so I've made a little profit (but not how I thought I would ). My silver on the other hand is a different story......

That is taken from another thread, I felt it deserved one of its own.

I fancy more commidites investments but with a strong dollar against the pound I lose value immediately.

Any thoughts ?

jon3001

cagey76 wrote: »

I fancy more commidites investments but with a strong dollar against the pound I lose value immediately.

How would you lose value immediately? If the pound were to strengthen against the dollar then the investments may be worth less in sterling terms. On the other hand a weakening dollar may push up commodity prices (in dollar terms) as producers demand more paper for their produce.

a7man

Alot of people are predicting the dollar to crash this year so I'm avoiding commodities for now..

newsaver2008

Which people? Most articles I have read are predicting the US economy to be the first out of the recession!

cagey76

jon3001 wrote: »

How would you lose value immediately? If the pound were to strengthen against the dollar then the investments may be worth less in sterling terms. On the other hand a weakening dollar may push up commodity prices (in dollar terms) as producers demand more paper for their produce.

If I bought the ETF today, and the dollar weakened against the pound tomorrow, then I am down. I would need to hope that the commodity rise was better then the exchange rate loss.

jon3001

cagey76 wrote: »

If I bought the ETF today, and the dollar weakened against the pound tomorrow, then I am down. I would need to hope that the commodity rise was better then the exchange rate loss.

You do understand that this is a long term (>5 years) investment? You have to tolerate capital fluctutions and you can expect both beneficial and adverse price movements on a daily basis. Severe (>30-40%) losses aren't out of the question over the course of the investment term.

If you can't tolerate even a one day capital fluctuation then you shouldn't be investing.

As I've said elsewhere, you can mitigate the downside by phasing money in over 12-24 months.

jon3001

a7man wrote: »

Alot of people are predicting the dollar to crash this year so I'm avoiding commodities for now..

Real assets such as commodities are actually a hedge against a weakening currency.

cagey76

jon3001 wrote: »

You do understand that this is a long term (>5 years) investment? You have to tolerate capital fluctutions and you can expect both beneficial and adverse price movements on a daily basis. Severe (>30-40%) losses aren't out of the question over the course of the investment term.

If you can't tolerate even a one day capital fluctuation then you shouldn't be investing.

As I've said elsewhere, you can mitigate the downside by phasing money in over 12-24 months.

'tomorrow' was metaphoric, call it a day, 6 months, 5 years, it doesn't matter entry and exit timing will have a huge bearing on how much is made / lost.

jon3001

cagey76 wrote: »

'tomorrow' was metaphoric, call it a day, 6 months, 5 years, it doesn't matter entry and exit timing will have a huge bearing on how much is made / lost.

Of course. I'm glad you realise this. Nobody knows how much you will make or lose on your commodity investments over the course of your investing. Nobody knows how short-term various economic conditions (e.g. currency factors) will affect much you eventually sell your investments for.

However there things you can do to control your range of outcomes.

You can lower your average entry costs by regular investing and phasing money into volatile investments.

You can periodically rebalance your commodity investments with other investments (e.g. stocks, cash, bonds) to take advantage of market cycles, potentially increase gains and lower the portfolio's volatility.

You can add non-correlated assets (e.g. bonds, stocks) to the portfolio to lower the portfolio's volatility.

If you have a target exit date in mind you can periodically increase the portfolio's allocation to bonds and cash to lower porfolio volatility and narrow the range of outcomes.

Dooooooooooooooonut

You can hedge currency if you like. What specifically are you intending upon investing in?

cagey76

Dooooooooooooooonut wrote: »

You can hedge currency if you like. What specifically are you intending upon investing in?

Silver and Oil, ETF's in these are based in dollars.

Also starting to lok at Japan.