Last Updated on 13th January 2019 by Mark
I had a couple of questions from a reader of my website recently about investments. I started to type a response then I thought it might be interesting to post it publicly instead in case others may be curious.
QUESTION 1 – “Why do you prefer to work with USD for some investments”
ANSWER – There are a few reasons:
1. The first is that I worked for large software companies and US Dollars as how I was paid much of the time. I haven’t seen any reason to change that as of yet.
2. The second reason is that investing in USD allows me to invest in USD denominated assets such as ETF’s (Electronically Traded Funds). Why do I prefer this? Because as you can read in my Growth Portfolio and Backtesting pages, historical data on US assets is more available than data from other markets (including the UK and Mainland Europe). The US has data on some markets for over 100 years. Backtesting for long periods of time in the past (using tools like Portfolio Visualizer, my favorite) is certainly no guarantee of future results, however markets are just a reflection of human emotions, and historically they seem to do the same things over and over again, in cycles and waves, so it gives me a little more confidence that there is a fair chance this will continue.
3. Third reason is that US markets have outperformed most other markets historically year over year for the last 100 years.
4. The last reason really makes a lot of sense to me. The US Dollar is the world reserve currency (Google this for more info but it basically means that most countries trade things like oil, gold and other commodities in USD, even if they are not trading with the USA as it is seen as a more stable and safe haven currency. Here is the actual definition). As such, it is one of, if not the strongest currency in the world. In the long run, it has been on an uptrend for many years against other major currencies (see charts below). As I live between the UK and Portugal and therefore use GBP and Euros for most of my purchases, it means that just leaving my investments in USD, even if in some crazy way the investments don’t make money in the markets, I still have a good chance of keeping up with some inflation through currency appreciation.
Here are monthly charts of the EUR/USD & GBP/USD for the last 10 years. Dollar is rising, and/or other currencies are falling.
QUESTION 2 – “Why do you keep all your physical gold outside the UK?”
ANSWER – Because keeping all of my eggs in one basket is a big no-no in my world. Gold is an excellent asset to diversify to other countries and continents, as it is not only part of my Growth Portfolio so I must own some, but it is also a physical asset which you can take to any gold dealer, pawn broker or jewelry shop in almost any country, and sell for local currency. Throughout history, stable countries have overnight turned into dictatorships or military states, dictators and governments have seized and confiscated assets of the common man and his family. Now, if you’re living in the UK, Mainland Europe or the USA, this might sound a little far-fetched, and hopefully it will never happen. But it has in similar places throughout history (Portugal was a dictatorship until about 40 years ago). Personally though, I just sleep better at night knowing that at any time I can get on a plane, or jump in to my car and drive to another country where I have some gold. Once there I immediately have an asset that I can turn in to cash to buy food and shelter.
Never forget (if you knew already) that in 1933 in the USA gold was confiscated by the government overnight. Would it happen again? In your country? I hope not, but better safe than sorry.
Paranoid? Maybe, but if you have to store gold somewhere, why not spread it about? It doesn’t cost any more and having the extra layer of safety for an emergency never hurt anyone.