The Sensible Guide to Forex: Safer, Smarter Ways to Survive and Prosper from the Start

CHAPTER 12

Forex for Income

The Smartest Oxymoron

I know, the title sounds like an oxymoron. The stereotypical private currency trader is a risk-taking short-term speculator. Income investors lean toward steady, reliable long-term returns.

However, the need for currency diversification is one of the most important lessons of the Great Financial Crisis. Ignoring it involves some toxic combination of ignorance, foolishness, laziness, and/or recklessness.

I can help you with only the first one, though if you have read this far the other three probably don't apply to you.

The lesson isn't new. It has been ongoing for decades. Remember Europe on $5.00 a Day, or when one U.S. dollar (USD) was worth hundreds of Japanese Yen (JPY), or even just when oil was under $50 a barrel? For those too heavily in the wrong currencies, currency risk has been a slow, quiet but steady drain on net worth.

However there's substantial risk of that draining sound getting louder as the process accelerates. With most developed world central banks keeping rates low and stimulus flowing as they hope to inflate away their debt burdens, it's likely that the purchasing power of most major currencies will continue to erode. That means you've got to get your portfolios diversified into assets tied to the best currencies. Your portfolio needs currency diversification just as much as it needs asset and sector diversificaton.

The past chapters have been mostly for traders, albeit the longer-term, more conservative ...