Investments are a key part of any successful strategy for building wealth. Generally speaking, we think of investments as tools for individuals to use as a means of funding their retirement or generating money for other plans.
That is certainly a large portion of the investment that takes place in an economy, but businesses invest as well. Obviously they invest in themselves, which can often be the best return, but they also make external investments to fund internal projects as well as to help improve the overall financial health of the business.
It may seem like a business that is successful shouldn’t need to invest elsewhere. After all, if it’s profitable, there should be plenty of revenue. The reality is that most businesses go through cycles. There are times when profitability is high and times when it’s not.
These cycles are often linked to the overall condition of the economy, but they can also be a result of downturns in the firm’s individual sectors or of transitions in the business to develop new product lines or to expand. In order to generate cash flow to meet financial obligations during those softer times, investments can be made.
The exact path for investment can be a little difficult to determine, especially when the focus is on hedging against economic downturns. If there is a recession that affects your business, where can you put money to insulate it from domestic issues?
The key word there is domestic. While the global economy experiences certain events that adversely affect everyone, other issues are a trade-off, in which one country gains and another loses. Currency is a perfect example. When a strong US economy pushes the value of the dollar up, other currencies drop. Should the US see a recession or other negative event, those currencies gain on the dollar.
That is why the Vietnamese Dong represents a good investment tool. With incredibly low current value relative to the US dollar, it’s an affordable purchase. Should the dollar see a retreat and the Dong see a surge, investors can quickly see a return. That is in addition to any gains you may realize by virtue of a change in the balance of trade.
Naturally, the odds of this happening at exactly the right time are low, so those who invest in currency should approach it the same way any investment strategy should be approached, which is with an eye toward diversification.
An economy is a complex machine. There is no such thing as an investment that is always doing well, so you must choose them in a way that spreads your risk. While buying the Dong, consider the Dinar and other currencies so that an issue in one nation–good or bad–isn’t the entirety of your investments.
What is uniquely beneficial about investing in currencies is how they can balance out exports. When the dollar is weak, other currencies are stronger against it, and the balance of trade shifts toward more exports from the US. When the dollar strengthens, exports drop.
The benefits are obvious for a business that sells both domestically and globally. A weak US economy can hurt domestic sales, but bolster exports. Further, the higher relative value of the other currency increases the value of currency investments. When those conditions reverse, the company still makes money because of domestic sales, allowing them to invest more in foreign currencies for future gains.
Any company should make investments in itself first. That’s the only way to build for the long haul. At the same time, though, they should have a plan for making diversified external investments to use as a strategy to protect against market downturns and international uncertainty. Properly managed, such an investment plan that includes foreign currencies can build multiple sustainable revenue streams.