Through the form of banknotes and coins, currency offers obvious benefits as a medium of exchange but it’s also an excellent long-term investment in its own right. The foreign exchange market, the largest financial market in the world, which does a 5 trillion dollar daily trading volume, is where currency itself becomes an asset that can be traded. Here multinational corporations, large banks, and brokers, among others, bet on the movement of national currencies in relation to each other.
5 BEST CURRENCIES FOR LONG-TERM INVESTMENTS
When we talk about something being the “best” in common language, we mean that it’s superior compared to others like it. But when it comes to currencies, the word “best” has to be understood in a completely different way. Sometimes, it could mean the “strongest” currency, which would be close to the common use of the word. But, at other times, it could mean the “weakest currency,” which, of course, means just the opposite to the common use of the word.
In the context of developing your investment portfolio with currencies, it’s essential that you clearly understand the meaning of the word “best.”
A weak currency with a promising future is the “best” one to buy rather than a strong currency backed by the most economically stable government. It’s “best” because you can buy a weak currency with a comparatively stronger one, hold on to it, and wait for the weak currency to revalue. Once this weak currency now becomes stronger, based on its country’s new economic growth, you can then sell it for a handsome profit because you paid a small amount to accumulate a large quantity of it.
This, of course, is just one reason why a currency could be considered the “best;” that is, one that is considered worth buying. A currency may also be best for some other reason. Additionally, constant market volatility can knock a currency once considered promising off the list of best currencies.
For these reasons, then, think of “best” as meaning “most promising” rather than “strongest and most stable” when you review this list of five currencies:
- Iraqi Dinar
- Vietnamese Dong
- Korean Won
- Malaysian Ringgit
- Chilean Peso
A Quick Overview of Long-Term Investments
A long-term investment is an asset that you intend to hold for more than one year. It could be any number of ventures marked on the asset side of your balance sheet. For instance, it could be a stock, a real estate property, or money. The alternative, of course, is short-term investments, which are assets held for less than a year.
Let’s take a closer look at a few examples to get a better understanding of how a long-term investment portfolio of diversified assets like shares, mutual funds, exchange-traded funds, real estate, and foreign currency can be used for lifelong earnings.
The primary advantage of putting capital in the stock market is the opportunity to grow your market through long-term money investments. While there are many possible investment strategies, they are all based on the belief that although the prices of stocks rise and fall daily, they generally tend to increase in value over time. Naturally, the best way to invest money in stocks is to focus on stable companies that have a history of providing investors with long-term capital gains.
All the benefits of long-term goals from individual stocks also apply to mutual funds. When you buy a mutual fund, you get a diversified volume of stocks where you did not have to pay commission charges for each stock. In other words, you get the benefits of diversification at a lower transaction cost.
There are numerous advantages to considering long-term investing in Exchange-Traded funds (ETFs). You reduce your risk through diversification, pay lower fees, and get the professional expertise of managed funds.
Most investors who dip into their savings account and put down capital for real estate property plan on long-term growth. Real estate rental property, in particular, is considered an excellent long-term asset because it provides cash flow, because owning property offers capital gains tax benefits, and because it’s easy to pay down a loan. Real estate is often considered one of the best ways to invest due to asset control and appreciation. Many investors also look on it as a hedge against inflation.
Foreign Currency Investments
Foreign currency investments are usually short-term investments when you are working with major currency pairs like the euro/dollar pair or EUR/USD, referred to as the “euro;” the U.S. dollar/Japanese yen pair or USD/JPY, referred to as “gopher;” the British pound/dollar pair or GBP/USD, referred to as “cable;” or the U.S. dollar/Swiss franc pair or USD/CHF, referred to as “swissie.”
Investing in foreign currency becomes long-term when there is considerable economic development in a country that will lead to a revaluation. Long-term investment advice for buying Iraqi dinar with United States dollars, for example, is to hold on to a large volume of the currency until the currency revalues, at which point you can sell it for capital gains. The same strategy can be used when buying Vietnamese dong with United States dollars.
Let’s take a closer look now at why some currencies are good long-term investments based on how a country’s economic growth will affect its currency’s value and reasons why the value is expected to improve over the long-term.
5 Best Currencies for Long-term Investments:
Investors fall into two groups, each with a diametrically opposed philosophy: Those who believe that a strong currency is good and those who believe a weak currency is the best choice. Both philosophies favor long-term investments.
Two examples of weak currencies are the Iraqi dinar and the Vietnamese dong. These are appealing to those who belong to the school of crisis investing. The basic idea is to scoop up weak assets then make huge profits once these countries rebuild their economies.
Two examples of strong currencies are the Korean won and the Malaysian ringgit. These currencies are appealing to investors looking for a stable currency. Countries with strong currencies generally have a low debt to GDP ratio, positive GDP growth, and a current account surplus. The thinking behind supporting strong currencies is that a rising tide lifts all boats or that a good thing gets even better.
Then there are in-between currencies, which we shall call “promising currencies.” An example is the currency of Chile. Economically, the country is doing better than ever before, but the currency has had a long history of losing value because of high inflationary trends.
Iraq’s economy has been on the rise since 2017, when the Iraqi forces made progress against territorial threats by pushing back against the jihad group called the Islamic State (IS) and retaking territories that had fallen into Kurdish hands. These initiatives increased security, which in turn created an opportunity for Iraq to once again produce and export oil. Since Iraq has been in a precarious political and economic state for about 15 years, these new changes auger well for the Iraqi economy to bounce back and for an Iraqi dinar revaluation.
The Vietnamese economy has been on an upswing ever since the country moved away from an agrarian economy to building an economy based on low-cost electricity. The government’s plans to make more electric energy power available has attracted major investors like Samsung Electronics. This economic progress encourages those that believe the Vietnamese dong will revalue in the near future.
The rise of the South Korean economy is mainly due to its focus on digital technology. The Bank for International Settlements points out that the South Korean currency has been steadily rising since 2015. The country’s resilient growth has now earned it a place among the Asian tiger economies. Investor’s eying the Korean won are pleased with the country’s impressive growth over the past four decades. South Korea, in fact, is now rivaling Japan when it comes to quality control, with Posco, Hyundai, and Samsung Electronics meeting the highest standards.
Malaysia is one of the most remarkable countries in the world when it comes to controlling inflationary trends. It has never experienced an entire year when inflation rose above 20 percent. Since its independence in 1957, the Malaysian Central Bank has kept inflation down and foreign reserves continuously well stocked. As a result, the ringgit is a strong currency, something that some investors like to see.
The Chilean peso, issued by the Central Bank of Chile, is increasing in value as the country has been struggling with inflation since the peso was first established in 1925. Mind you, this is not the original peso, but the escudos which came into existence in 1959. However, in 1975 the peso was re-established as the country’s monetary unit.
Why is the peso, or the reincarnation of it, now doing well? It’s because the country has become one of the most developed in Latin America. Corruption is now at an all-time low because bureaucracy has become so transparent. Despite some setbacks in commodity pricing, particularly of copper, the economy is continuing to record impressive economic growth, and it’s expected that Chile will grow at an even faster rate once the commodity prices recover.
This is a promising currency because the currency should get stronger as the economy continues to grow at an impressive rate.
When it comes to long-term investing, you should aim for a diversified portfolio. This could be a mix of assets like stocks, mutual funds, ETFs, real estate, and foreign currency.
And when it comes to managing long-term investments properly here are 5 key guidelines to keep in mind:
- Sell assets that aren’t doing well and keep those that are. Some will do worse than expected while others will do better than expected. It’s hard to know everything there is to know about an asset before you invest.
- Don’t get upset or excited by small market moves. Think in terms of continuing trends.
- Focus on the longstanding future of an asset rather than passing political or economic changes. For instance, if you are currently holding steel commodities in your portfolio, don’t be too hasty to dump your assets during the steel tariffs trade war. Wait and see if things get better or worse before deciding. Will the tariffs be called off because they are hurting steel manufacturers or will they continue to escalate? It’s too early to tell.
- Do plenty of research on every asset you buy. The more you know, the less you’ll be taken by surprise.
- Pick a strategy you like and that has worked out favorably for you. There are many out there and they can often appear completely contradictory to each other. Adopt a long-term view when deciding on the best one.
When it comes to how to benefit from foreign exchange investments, there are many schools of thought on how to go about it. You can profit from crisis investing or from growth investing. When deciding on what currency to buy you should understand its country’s economic situation. If you need more information or have decided on a currency to buy, you can count on the experts at Treasury Vault to handle your needs.