How to Invest in Dollars: 5 Smart Strategies for Beginners

Are you wondering how to put your money to work in the world’s most dominant currency? I’ve been there too! Investing in US dollars can be confusing at first, but it’s actually pretty straightforward once you understand your options.

Whether you’re looking to diversify your portfolio, protect against local currency fluctuations, or simply earn income in dollars, I’ve got you covered with this comprehensive guide to dollar investing.

Why Invest in US Dollars?

Before diving into the “how,” let’s quickly cover the “why” The US dollar remains the world’s reserve currency and offers several advantages

• Stability during economic uncertainty
• Global acceptance for international transactions
• Diversification for your investment portfolio
• Protection against local currency depreciation

Now, let’s explore your options for investing in dollars!

1. Standard Forex Trading Accounts

One direct way to invest in dollars is through a forex (foreign exchange) trading account. This method works differently than stock trading:

• Currencies are traded in pairs (like USD/EUR)
• You’re essentially betting one currency will rise against another
• Trading happens 24/5 (Sunday night through Friday afternoon)
• No central exchange regulates the market
• No limits on position sizes

While forex trading offers flexibility, it does come with significant risks. The market can be extremely volatile, especially for inexperienced investors using leverage.

Pro tip If you’re new to forex trading, start with a demo account before risking real money. The learning curve can be steep!

2. US Dollar CDs and Savings Accounts

If you’re looking for something more conservative US dollar certificates of deposit (CDs) and savings accounts might be your best bet.

Some financial institutions offer these products specifically for holding US dollars:

• WorldCurrency CDs that earn interest at local rates
• Basket CDs containing a mix of different currencies
• Foreign currency accounts that function like money market accounts

These options provide:

• Lower risk than direct forex trading
• Potential for higher interest rates than domestic CDs
• FDIC insurance against bank insolvency (but not currency risk)

It’s important to note that when your CD matures, you might get back fewer dollars than you deposited if the US dollar weakened against your local currency during that time.

3. Foreign Bond Funds with Dollar Exposure

Another great strategy is investing in mutual funds that buy US government bonds or other dollar-denominated debt securities.

These funds offer:

• Interest income paid in US dollars
• Professional management
• Portfolio diversification
• Lower volatility than direct currency trading

Some popular examples include:

• BlackRock’s Strategic Global Bond Fund
• Fidelity International Bond Index Fund
• Vanguard Total International Bond Index Fund

When choosing a bond fund, pay attention to the expense ratio – it can significantly impact your returns over time.

4. Investing in US-Dollar Mutual Funds

Did you know you can use US dollars to pay for mutual funds with a US$ purchase option? This is a fantastic way to maintain dollar exposure while investing in various assets.

There are two main approaches:

Option 1: Funds that invest in US$-denominated securities

For example, if you invest US$500 into a US dividend fund, the fund manager uses your money to buy shares of companies like Apple on US exchanges using dollars.

Option 2: Funds that invest in non-US$ denominated securities

In this case, if you invest US$200 in an international equity fund, the manager might purchase shares of companies like Burberry on the London Stock Exchange in British pounds.

The key difference is in currency exposure. With option one, you’re only exposed to US dollar fluctuations. Option two exposes you to multiple currencies based on where the fund invests.

5. ETFs and ETNs for Currency Exposure

For investors who want the simplicity of stock trading with the exposure to currencies, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) are perfect options.

These products:

• Trade like stocks on regular exchanges
• Don’t require a specialized forex account
• Come with various strategies (bullish dollar, bearish dollar, etc.)
• Offer liquidity and transparency

Popular currency ETFs include:

• Invesco DB US Dollar Index Bullish Fund (UUP)
• ProShares UltraShort Euro (EUO)

These products let you gain dollar exposure without dealing with the complexities of forex markets directly.

Bonus Strategy: Investing in Multinational Corporations

If you’re looking for an indirect way to benefit from dollar movements, consider investing in US-based multinational companies with significant international operations.

Companies like Coca-Cola, McDonald’s, IBM, and Walmart derive substantial revenues from overseas. When the foreign currencies strengthen against the dollar, these companies often see a boost in reported profits when converting back to dollars.

This approach gives you:

• Dollar-denominated investments
• Potential growth from business operations
• Dividend income in dollars
• Currency diversification

Understanding the Risks of Dollar Investing

I wouldn’t be doing you any favors if I didn’t mention the risks involved in dollar investing:

• Exchange rate risk: Currency values fluctuate based on economic factors, interest rates, and geopolitical events
• Transaction risk: Losses can occur due to delays between transaction and settlement
• Political risk: Government decisions can impact currency values
• Leverage risk: Many forex traders use leverage, which can magnify losses

It’s important to understand that even the US dollar, despite its global status, experiences periods of weakness and volatility.

Important Considerations for Tax Reporting

For Canadian investors (and similarly for investors in other countries), there’s an important tax consideration: all transactions must be reported in your local currency for income tax purposes.

Any US dollar distributions will be converted to your local currency at a designated exchange rate on your tax slip. Make sure to keep good records of all your transactions for tax time!

Which Dollar Investment Strategy Is Right for You?

The best approach depends on your:

• Investment goals
• Risk tolerance
• Time horizon
• Existing portfolio composition

For beginners, I’d recommend starting with either:

1. US dollar savings accounts or CDs
2. Dollar-denominated mutual funds or ETFs

These options provide dollar exposure with less complexity and risk than direct forex trading.

My Personal Experience

When I first started investing in dollars, I made the mistake of jumping straight into forex trading without proper education. Let’s just say it didn’t go well! I’ve since found that holding a mix of dollar-denominated ETFs and some US blue-chip stocks has been a much better strategy for my risk tolerance.

Remember, currency investing should typically be just one component of a well-diversified portfolio, not your entire investment strategy.

Final Thoughts

Investing in dollars doesn’t have to be complicated. Whether you choose the direct approach through forex trading or prefer the simplicity of dollar-denominated funds, the key is understanding what you’re investing in and why.

I recommend speaking with a financial advisor to understand how a particular investment’s currency exposure is managed before making any decisions. This will help you figure out exactly what risks you’re taking on.

Have you tried investing in dollars before? Which strategy worked best for you? I’d love to hear about your experiences in the comments below!

Remember: While exchange rates fluctuate year to year, the impact of currency on investment returns typically diminishes over the long term. Focus less on trying to predict currency movements and more on building a portfolio that aligns with your financial goals.