Forex Fundamental Analysis

Why Investing In Foreign Currencies Makes More Sense Than Saving Money! 

Money can be a blessing or a curse, depending on what it is used for. If you keep too much of your money in low-yield savings or checking accounts, inflation will decrease your net worth over time. In contrast, if you park your cash in foreign currencies, not only will you earn higher returns, your investment portfolio will be more diverse too! 

When it comes to managing your finances, there is no definitive approach, but maintaining a portfolio comprising various assets can help you effectively uphold your savings strategy. 

By spreading your risks, you reduce your chances of failure and increase your chances of success.” – John Templeton 

FDIC Limits and Multi-Asset Management 

Allow me to provide you with some context first. The Federal Deposit Insurance Corporation (FDIC), an agency of the US Government, offers insurance for bank deposits up to $250,000 per individual, depositor, bank, and ownership category.  

Simply put, if you happen to possess over $250,000 in a single bank and that bank was to face insolvency, any amount exceeding the insurance limit would not be covered. This leads us to evaluate: What options are available when dealing with cash in excess of $250,000? The remedy for this situation involves either opening multiple bank accounts or delving into diverse investment avenues. 

Many discussions, however, agree that investing in more than one asset, such as forex, stocks, or commodities, can be more beneficial than merely opening multiple bank accounts. 

Why Investing In Foreign Currencies Makes More Sense Than Sitting On Your Money! 

How to Multiply Your Money Beyond Traditional Banking? 

Multiplying your money is easier with forex, stocks, gold, commodities, and energies than traditional banking. Here are a few reasons why having a portfolio of assets could be the right move: 

  1. Diversification: Market conditions affect asset classes differently. The advantage of diversified investments is that you are less likely to be affected by the poor performance of any one asset. You can also potentially increase your returns and protect your wealth this way. 
  1. Potential for higher returns: Although bank accounts generally earn low-interest rates, investing in a variety of assets can yield higher returns. There has been a long history of stocks and commodities outperforming traditional savings accounts or fixed deposits. 
  1. Access to global markets: By investing in a variety of assets, you can access global markets. Forex trading, for instance, allows you to profit from currency exchange rate fluctuations. By investing in stocks, you can own shares of global companies and profit from their dividends. This exposure to a variety of markets could also enhance your investment opportunities. 
  1. Flexibility and control: Investing in various assets gives you a greater level of control. Based on your research and analysis, you can decide what stocks, currencies, or commodities are best for you to invest in. Bank accounts, which hold and manage your funds, do not offer this level of control. 
  1. Hedging against inflation: Gold and commodities are often considered inflation hedges. You may be able to maintain your purchasing power when inflation rises by holding some of these assets. The protection provided by bank accounts against inflation, however, may not be as high. 

It is important to remember that investing always carries risks, even if it has advantages. You can be affected by market fluctuations, economic conditions, and individual asset performance. 

How Inflation Erodes Your Savings Account? 

Over time, inflation can diminish the value of your savings, resulting in a decrease in purchasing power and the ability to buy fewer goods and services with your money. This occurs because inflation causes prices to rise, and if the interest rate on your savings account is lower than the inflation rate, your savings effectively lose value.  

For instance, if you have $100 in a savings account with a 1% interest rate, after a year, you will have $101. However, if the inflation rate is 2%, you would need $102 to maintain the same purchasing power. Thus, although you gain a dollar, your buying power decreases. 

During periods of inflation, it is common for individuals to keep their money in the bank, assuming it is the safest option. However, in times of high inflation, there is a risk of devaluation of your savings.

While keeping your money in the bank allows you to earn interest, which partially mitigates the impact of inflation, the growth of your savings may not be sufficient to completely offset the loss caused by inflation. Additionally, during periods of high inflation, banks often offer higher interest rates

How Much of Your Paycheck Should You Save and Invest? 

The 50-20-30 rule divides your paycheck into three categories: 50% for essentials, 20% for savings, and 30% for everything else.  

  • 50% for essentials: Rent, food, gas, and other household expenses.  
  • 20% for savings: A savings account, a retirement contribution, a loan, and a credit card payment. 
  • 30% for everything else: Fashion, restaurants, streaming subscriptions, gym memberships, etc.  

If you don’t like the 50-20-30 budget, you could try one of these alternatives.  

The 80-20 plan – The 80-20 plan simplifies budgeting compared to the 50-20-30 rule and the envelope system. With this plan, you directly deposit 20% of your paycheck into a savings account, while the remaining 80% is yours to spend freely. Setting up automatic withdrawals or direct deposits ensures that 20% is saved before you can spend it. 

Why Investing In Foreign Currencies Makes More Sense Than Sitting On Your Money! 

Why Investing in Foreign Currencies Is Worth Considering! 

Investing in foreign currencies can be worth considering for several reasons. Here are some key points to understand why investing in foreign currencies may be beneficial: 

  1. Diversification: Foreign currency investing gives you the opportunity to diversify beyond domestic assets and reduce the risks associated with investing solely in a single currency. Learn forex portfolio diversification. 
  1. Inflation protection: Some currencies provide inflation protection. You can protect your purchasing power by investing in a foreign currency whose value has historically been preserved during inflationary periods. 
  1. Hedge against currency risk: You can hedge against currency fluctuations by investing in foreign currencies if you own foreign assets or plan to travel overseas. Exchange rate movements can adversely affect the value of investments. 
  1. Geopolitical opportunities: Foreign currency investing allows you to participate in economies with strong growth or advantageous geopolitical conditions. A stable economy or emerging market can be capitalized on through this strategy. 
  1. Potential for higher returns: Investing in foreign currencies can provide higher returns than investing in domestic currencies. 
  1. Portfolio hedging: By investing in foreign currencies, you can protect your portfolio from other losses. Choosing a well-balanced foreign currency investment can provide a counterbalance to market declines. 
  1. International trade opportunities: Investing in foreign currencies can provide you with the opportunity to trade internationally. It is beneficial to invest in a particular currency if you expect its value to rise as a result of increased trade activity. 
  1. Diversification of income streams: If you invest in foreign currencies, you can earn interest on deposits or bonds denominated in those currencies as well. 
  1. Access to unique investment instruments: When you invest in foreign currencies, you can access investment instruments you cannot find on your domestic market. There are a number of investment opportunities available to you in foreign currency-denominated bonds and funds, for example. 
  1. Speculative opportunities: The high liquidity and volatility of foreign exchange markets make them ideal for speculative trading. Inefficiencies in the market and currency fluctuations can be exploited by skilled traders. 

Forex trading is a prominent investment destination as it fits all traders with different experience levels. This forex for beginners guide is the best place to start! 

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