Today’s guest post is on forex investing as a possible option in your portfolio. As with everything in personal finance, you should examine for yourself if this is a good option for you.
The 2008 Global Credit Crisis changed things. In the wake of a near complete collapse of the global financial system, a metaphorical “reset” button was hit. Time will prove if this is true, but the ravishing effects of the Sub-Prime Mortgage Crisis may have set off a new trend in the global economy—and that new trend may be a gradual descent of America as the clear economic world leader, and a gradual ascent of emerging market economies such as China, India, and Brazil.
In previous generations, working-class Americans were able to invest in retirement accounts each year, and at the end of their careers, if they had a good paying job for most of their adult lives and mastered their finances successfully, they were able to retire with at least $500,000 as a nest egg, and possibly much more. That option is no longer available for Americans. The current economic recovery in the United States is proving to be extremely slow, and the Federal Reserve is now saying we will see unemployment remain stubbornly high for several years as the economy exhibits very sluggish growth.
The U.S. has been wounded. And our recovery is not going so well. But we are in good company. Europe is struggling with us. The western developed world is obviously in a world of hurt. And this reality is what has possibly caused a “reset” button to be hit. However, China, India, and Brazil have not been hit as hard as the U.S. and the rest of the West. In fact, these countries are still expanding and growing at incredible speeds. Thus, the revelation—each year that the U.S. continues to struggle for economic recovery, China and India are growing exponentially. So, you have the U.S. moving forward, but very, very slowly, and some would even argue it is moving backwards from a long-term perspective. And as the U.S. is moving forward very slowly, or even moving backwards, you have China, India, and Brazil moving forward at warp speed. The question is when will they catch the U.S.?
Go Global with Investing?
Most economists have predicted that China will catch the U.S. by 2030, although it could be sooner. Today’s Americans do not have the luxury of investing in mutual funds and 401k’s and expecting to get the steady 10%-12% returns over the next 20-30 years that previous generations of Americans did. The game has changed. In order to truly build wealth over the next 20-30 years, investors may have to go global. It may be absolutely necessary to invest in foreign markets such as China, India, and Brazil. To a new investor that may be a scary thought, so let’s examine how an ordinary investor can take advantage of this explosion in emerging markets.
Foreign Exchange Trading – A Hidden Oppurtunity?
There is an entire industry called managed futures. Managed futures are hedge funds and other alternative investment funds managed by Commodity Trading Advisors. This industry is heavily regulated by the National Futures Association (NFA). Typically, only wealthy clients have been able to invest in managed futures accounts, but many firms are beginning to lower the entry criteria. Previously, clients were required to have a minimum net worth of $1,000,000 and minimum investments were often at least $100,000. But today many firms are beginning to allow investors to invest with minimum capital investments of $5000 or even less.
The benefit to investing capital in a managed futures account is that many funds engage in foreign exchange trading or foreign equities. Both of these investment vehicles will expose your assets to emerging markets and help you take advantage of their incredible current and expected growth prospects.
An interested investor can research exhaustive databases at the NFA and at Barclay’s in order to find a fund that is in line with his or her investment objectives. Simple research will reveal how a fund has performed throughout its history. Although managed futures may be a great way to further diversify one’s portfolio, it should be understood that many funds trade on leverage, so it is also risky.