What’s International Diversification All About?

Thank you to all the readers who responded to my recent article, “Diversification, what are you trying to accomplish?” Diversification is a hedge to protect your nest egg from catastrophic risks, including desperate governments and high inflation.

Readers asked for more information about my remark, “How does an investor hedge against inflation? Hold money in different currencies – outside the country if possible.”

How does the average investor go about diversifying out of the US dollar, and safely store some wealth outside the country? What are good currencies to invest in? If you sell dollars and buy currencies that are inflating even faster, you are losing wealth. Readers asked for help.

I contacted a friend and international expert, Rob Vrijhof, President and Senior Partner of Weber Hartmann Vrijhof & Partners Ltd. (WHVP) in Zurich Switzerland. Rob has been involved in international banking since the late 1970’s and is the voice of experience.

DENNIS: Rob, on behalf of our readers, thank you for taking the time for an interview today. In your August edition of The Swiss View, you discussed currency diversification.

Diversified currencies are something international investors regularly factor into their thinking – not only what assets are good investments, but also in what currency do I want to hold the investment to protect my buying power? Most US investors never think beyond US dollars.

Europe, the US, and Japan, in particular, have just gone through years of devaluating their respective currencies. The geopolitical issues around the world are worrisome.

Before we talk individual currencies, what are you telling your clients today? Do you see a high risk and need for diversification?

ROB: Thank you for inviting me. You have touched a very important subject.

As you say, “diversification means different things to different people.” In the 25 years, we have been in business, I am still surprised that many investors do not understand the real sense of diversification. We very often talk with interested parties who feel they are indeed very well diversified. They will explain that, yes we hold 50% in treasuries, 30% in stocks in the S&P and Nasdaq and 20% in Gold and Gold stocks at Bank XYZ. This is not what we would consider good diversification.