How to Profit from a Declining Dollar - and Understand Tax Rules on Real Estate

Article excerpt

Q: If a person believes the US dollar is going to continue to lose value, where is a good place to invest? The euro?L.B., via e- mail

A: Many pundits are predicting the dollar's continued decline, due in part to the large trade deficit. To date, Ray Benton, a certified financial planner in Denver, says that euro-denominated investments have benefited along with many other foreign assets.

But the relative values of currencies seem to self-adjust over time, Mr. Benton notes, making precise predictions difficult to make. So focusing on overall portfolio allocations is the best policy for most people, he says.

Diversified investment portfolios should include an allocation of international stocks and bonds - both of which have benefited from the dollar's decline.

In fact, investors with disciplined rebalancing programs may currently be taking profits from these segments and reallocating assets to other sectors. So maintaining a core portfolio geared to your long-term objectives is more likely to lead to success than short-term wagers, he says.

Nevertheless, if you want a pure play on the dollar's continued fall, Benton says that an international bond mutual fund may be a better bet than an investment pegged to a single currency.

Q: I'm uncertain about the 1997 capital-gains tax law revision on home sales. Assuming house values continue to rise, can one continue to defer the capital-gains tax owed by selling and reinvesting in a new home every few years and thus avoid the tax until distribution of the estate upon death? If so, does one owe capital-gains tax on the increased value of only the last house purchased? …