Editors’s Note: This blog was originally published in March 2022 and has been completely revamped and updated for accuracy and comprehensiveness.
What is one of the first things that gets hit when an economy faces uncertainties and instabilities? The value of it’s currency.
While you may wonder why you should care about the dollar value if you’re not dabbling with forex trading, a weak U.S. dollar could heavily impact your retirement plan. Simply put, a “cheaper” U.S. dollar could reduce the value of your retirement portfolio — and who wants that, especially later in life?
Our blog will explore how a weakened US dollar may impact your retirement plans unexpectedly and why you might want to consider using a current hedge with Swiss Francs to protect what you’ve worked so hard to build.
What Causes the US Dollar to Grow Weaker?
Before we go deeper into the value of your IRA or 401k, let’s understand what happens when the US dollar weakens. The US dollar weakens when it loses value compared to other currencies. This can happen for several reasons:
- Lower interest rates in the US compared to other countries can make the dollar less attractive as investors seek higher returns elsewhere.
- Fiscal policies, such as increased government spending or tax cuts, can lead to higher deficits, potentially devaluing the dollar.
- Compared to other countries, high inflation in the US can erode the dollar’s purchasing power, making it less valuable.
- A significant trade deficit, where the US imports more than it exports, can put downward pressure on the dollar as more dollars are exchanged for foreign currencies.
- Investors’ confidence in the US economy and political stability can influence the dollar’s strength. Negative sentiment can weaken the dollar as investors move assets to perceived safer currencies.
- Geopolitical tensions, economic crises, or major events in other countries can affect the dollar’s value as investors seek safety or higher returns in other currencies.
The interplay of these factors determines the dollar’s value on the global stage, influencing its strength relative to other currencies.
What Role Should Inflation Play in Your Retirement Planning?
There are many reasons to include inflation in your retirement planning process. Not including it in your planning process could force you to make compromises you hadn’t planned to make later in life.
Because inflation erodes the value of money over time, your purchasing power can reduce what you can buy with a fixed amount of money. Planning for inflation helps ensure your savings maintain their purchasing power, allowing you to afford the lifestyle you desire in retirement.
Acknowledging inflation can guide your investment choices, encouraging a balance between growth-oriented investments and safer, income-generating assets. This balance is key to outpacing inflation while managing risk.
As the cost of living increases, so will your need for income in retirement.
Including inflation in your plan helps you estimate how much income you will need in the future to cover higher expenses.
Certain costs, like healthcare, tend to rise faster than the general inflation rate. Planning for inflation allows for a more accurate forecast of these expenses, helping you save sufficiently for your needs.
With people living longer, the impact of inflation becomes more pronounced over an extended retirement period. Planning for inflation helps ensure that your savings last throughout your retirement, regardless of length.
Learn more about LFA: Swiss Wealth Management for US Investors
Consider Investing with Swiss Francs to Protect Your Retirement Plan
Many high-net-worth US investors are diversifying their portfolios by investing with Swiss Francs vs. US dollars, especially as the US has experienced persistent inflation for the past several years. Here’s why.
Investing in Swiss Francs (CHF) during inflationary periods can be a strategic move to safeguard your retirement savings for several reasons.
- The Swiss Franc is often seen as a “haven” currency due to Switzerland’s stable economic and political environment, robust financial system, and strict monetary policies. This stability makes CHF an attractive option for preserving value when other currencies might lose purchasing power due to high inflation.
- The Swiss National Bank (SNB), Switzerland’s central bank, has a strong reputation for maintaining price stability and low inflation rates, which can help protect the actual value of your investments. During global economic uncertainty or high inflation in other countries, the CHF tends to appreciate, providing a potential hedge against the erosion of your investment’s value.
- Diversifying your retirement portfolio by including assets denominated in Swiss Francs can reduce your exposure to the currency risk associated with holding investments solely in one currency, such as the US dollar. This diversification can help smooth out potential volatility in your portfolio’s value, contributing to a more stable financial future as you approach retirement.
Strengthen your retirement plan today with LFA – download this complimentary resource to begin!
Get to Know LFA
LFA is recognized as a premier Swiss wealth management firm serving US-based investors.
Here are some of the reasons why successful, high-net-worth individuals and families select LFA as their wealth management partner:
- We specialize in global asset management services. Diversification is an important component that our clients are looking for. We bring a balance between risk and potential returns with our global wealth management portfolios. We invest in companies from all around the globe.
- We operate on a fee basis, meaning our advice is crafted around your unique situation, goals, and risk tolerance without external pressures or biases. Transparency is key for us – what you see is exactly what you get.
- At our core, we’re all about service. Our mission is to offer top-notch financial guidance and support to help you toward your long-term goals. Whether through face-to-face meetings, video chats, or regular updates, we’re committed to keeping you in the loop and informed about your investments and the broader financial world.
- Investing with us means your portfolio benefits from including one of the world’s most stable currencies – the Swiss franc. Switzerland’s economic and political stability, especially during uncertain times, makes it an attractive base for managing wealth. By incorporating Swiss franc-based investments, your financial portfolio gains an extra layer of security.
- Our registration with the U.S. SEC highlights our commitment as your financial guardians, ensuring your interests always take precedence. This principle is at the core of our identity as wealth managers. Moreover, our regulation by FINMA underscores our dedication to maintaining the highest service standards for our clients globally.
- Like other trusted professionals you rely on, our compensation is straightforward and aligned with your interests. We work with a fee-based structure calculated as a percentage of assets under management, so our success is directly tied to yours.
If you’re considering partnering with a Swiss wealth management firm to better diversify your holdings, we invite you to connect with us.
