With all the recent talk about a weaker US dollar, you may be wondering what your choices are to hedge against or make money should this happen. We wondered exactly that same thing about a year ago and discovered there weren’t many options.
It seemed logical that the easiest way to hedge against a dropping USD was to directly invest in Euros (or another foreign currency), but there didn’t seem to be any easy way to do this that didn’t involve traveling to another country to open a bank account.
Schwab offered some services such as investing in eurodollars or foreign bonds, but neither was as appealing, especially given that trades had to be conducted through their a specific department at their global investment division by phone. A few other brokerages offered investments in foreign currencies, but only to high net worth customers of $10M or more. (Sadly, we don’t qualify.) Other options we considered were some CEFs and mutual funds that invest in foreign companies or bonds.
Finally, our research pointed us to Everbank, which seemed to be the only service that offered direct investment in foreign currencies. We decided to give this a shot after confirming that they were reputable and were FDIC insured as a bank (though obviously any loss in investments would not be covered). It seemed easy enough: open an account via fax and wire transfer or deposit money into it. When you wanted to convert to another denomination, you’d call them by phone to place the order.
To make a long story short, after using them for a year, I decided to search for better ways of hedging against a fall in the US dollar. You can probably tell from my other posts that transparency is very important to me when it comes to investing and money, and I just didn’t feel that Everbank World Markets provided that level of service. Before opening an account, we couldn’t find any information on their commission structure on their site (even in the FAQ), so we had to call them and ask specifically in order to find out. They charged 0.5% for each trade (e.g. USD to another currency, and again vice versa) for amounts US$100K and above, and 0.75% for each trade if the amount was below that. (Not a bad spread for them, eh?)
I also noticed their customer service wasn’t at the level I expected for a bank or brokerage. The reps always answered with, “It’s a great day at Everbank. This is John”, always giving their first name only, always curt, and never particularly friendly. We found out quickly that they place currency trades in batch orders once or twice a day, so it seemed we could never find out what the current spot price was or what our trade was executed at unless we called back the next day. Oddly enough, once we had a rep who said, “Well, if you place a trade order now, I can guarantee you a good spot price.” This not only seemed counter to what all the other reps said with regard to the batch processing but reeked a little too much of used-car salesmanship tactics.
A few months after we opened the World Market accounts, they started offering online access to your accounts if you opened a FreeNet Checking account. After doing so, we were able to look at our World Market accounts online, but not easily. Many times their servers were down, and their login and password requirements were a bit complicated. Anytime you forgot your password, it seemed their automatic retrieval system (which asked you some security questions) were 404-Page Not Found, which meant another call to the Customer Service department to reset the password.
So, in the end, we decided Everbank World Markets just wasn’t right for us. It still seems to be the only way out there to invest in foreign currencies, but the lack of transparency and difficulty of use bothered me enough that I decided to seek different ways to invest in a weak dollar, namely, finding foreign companies whose markets are mainly in their own countries (and not exporters, who would be hurt by a weak dollar), or perhaps US companies that do the bulk of their business overseas.