Josh Brown at The Reformed Broker reminds us that currencies are never ‘investments’ in and of themselves, they are merely a medium for exchanging values.
Dollar-denominated bonds are investments, since they have an established yield to maturity, ie. they are built to provide an investment return to their owner. Stocks bought in dollars are also investments since they have a claim to ownership in a business and a claim on its cash flow. There are many investments denominated in dollars, or yen, or euros, etc.
But purely owning dollars, as in simply holding a dollar, and hoping it rises or falls relative to other currencies, isn’t an investment since it’s not structured to provide an investment return.
This is a simple, yet important distinction we can easily forget when bombarded by new products providing us exposure to the movement of currency prices:
The reality is that it’s foolish to “invest” in a currency from an asset management standpoint, unless we’re talking about swinging for the fences with the Iraqi Dinar or something. Currency is not an investment, it is a tool of monetary exchange and hedging activity.
The six major trading pairs are actually fairly stable, there isn’t any money to be made on currency investment, only trading and speculation. And this requires a lot of leverage, which to me cancels out any “benefits” that anyone could cite.
Currencies are just a medium of exchange that investments are denominated in.
Can you trade a currency? Sure, but if you truly like a currency in the long-term, yet want to have your money invested, then pair it with an investment denominated in that currency, such as a bond or stock. Then you can truly own an investment, while at the same time taking part in some currency speculation by having your investment denominated in the currency you like.
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