Don’t Ignore The Investment Bogeyman

Grandson Brock worked two summer jobs and made a hefty deposit into his savings account. This is money he earned and is taking an active role in learning about investing to make it grow.

When asked to define investing, he responded, “Not spending your money; using it to earn more money.” Webster says: – “To commit (money) in order to earn a financial return. – to make use of for future benefits or advantages.”

If only it was that easy. Since the Fed began, the inflation bogeyman steals his cut. I recently wrote how an investor can make & lose money at the same time:

“Since the 2008 bank bailouts, treasuries, CDs and top-quality bond interest rates have generally not beaten inflation. On paper your “safe interest income” might look nice, you made a profit, however, the buying power of your life savings decreased.

In 2022 inflation hit 8%, and most CDs still paid 2%. The confident investor with $1.2 million in CDs would lose a net 6% ($72,000) in buying power of their life savings.”

I continued…

“Friend Frank Trotter at Battle Bank shared an eye-popping statistic in their recent Battle Bulletin:

“Despite gold’s spectacular run, including a roughly 65% gain in 2025, its best year since 1979, U.S. investor allocations remain remarkably thin.

Bank of America’s Global Fund Manager Survey found average professional allocations of just 2.4%, with nearly 40% of managers reporting no gold exposure at all. Estimates of gold’s share of U.S. household financial assets run well under 1%.

Morgan Stanley’s headline-making late-2025 recommendation that investors adopt a 60/20/20 portfolio, with gold receiving the same 20% weighting as bonds, was newsworthy precisely because actual positioning is nowhere close to that.”

Daughter Holly checked their money manager’s website. Around 2.4% was allocated to a couple index funds, designed to ward off the inflation bogeyman. Over the long haul, the buying power of their life savings is at risk!

Gold may sit idle for a decade, but when the time comes it performs.

This month’s Battle Bulletin, What’s on the Other Side of Every Trade? A Serious Look at Currency Investing, grabbed my attention:

“Here’s the uncomfortable arithmetic for the typical investor. Own the S&P 500, a bond ladder, a money market fund and a house, and you may believe you’re diversified across hundreds of positions. But measured in currency terms, for the most part you own one position at 100% weight.

Since nearly every asset you hold is priced in this currency, and your future liabilities are denominated in it, the concentration feels natural. But it is still concentration.

The argument to ignore currencies writes itself when the dollar is strong, as it was for most of 2011 through 2024. During those years, unhedged foreign exposure was a drag, and dollar concentration looked like wisdom.

But then 2025 arrived with a new administration and new policies, and the same concentration subtracted double digits of global purchasing power in 12 months. Morningstar noted that through September 2025, the dollar had depreciated 13.1% against the euro and about 14% against the franc. An American with no foreign currency exposure did not avoid the currency market that year. They simply took the losing side of it, in size, without ever placing the trade consciously.”

US investors may have beat inflation, and the IRS happily taxed the income; however, are they still losing ground?

I contacted Battle Bank CEO Frank Trotter for clarification.

DENNIS: Frank, thank you for taking your time for the benefit of our readers.

Mutual friend Chuck Butler taught our readers that all fiat currency (not backed by gold) is nothing more than a political promise. What keeps it from becoming worthless pieces of paper is confidence.

Frank, it looks to me like last year people could have made money on paper, beat the US inflation bogeyman, yet still lost buying power in the rest of the world.

Can you explain what that means to a reader who may have an IRA or 401k totally denominated in US dollars?

FRANK:Thanks Dennis. Of course, this varies year by year but most of us focus exclusively on US inflation. That’s not something to ignore, but overlooks much of what is happening in the world. That 100-euro dinner in rural France may have cost $112 last year, but it’s nearly $120 this year. If you aren’t dining in Paris that may not seem like a bad thing, however, over time things level out. Imported goods become more expensive.

DENNIS: Chuck explains that currencies trade in pairs, one goes up, another goes down. Please explain the difference between investing in a currency versus buying shares in an ongoing business.

FRANK: Investors can buy bonds denominated in a foreign currency which pay interest; however, those raised on stocks often confuse that same thinking into currencies. A stock is a claim on a (hopefully) growing stream of earnings. A currency compounds nothing by itself. For every currency that rises, another falls.

That distinction matters for expectations. In some years currency returns run parallel to equity returns. A U.S. investor holding Swiss francs in 2025 earned a currency gain that was close to the Dow’s price gain. The Dow rose because 30 large businesses earned money and investors paid up for those earnings. The franc rose because global investors marked down the relative standing of the dollar.

DENNIS: OK, let me make sure I understand this. Using Nestles as an example. Investing.com indicated the US stock price rose 4.4% last year.

Holding those shares in Euros or Swiss Francs would have been worth more worldwide buying power?

FRANK: If you held that same security outside the US denominated in say Swiss Francs, the price change would include changes in the price of the stock plus changes in the currency price. At a recent endowment meeting, the chairman mentioned last year global shares performed very well, much of it attributed to US dollars going down in value.

DENNIS: I checked – you’re right! I own Nestles offshore denominated in Swiss Francs. Our 2025 gain totaled 20.4%. The majority of the gain was the dollar losing value in relation to the franc.

Frank, President Trump is trying to bring jobs back to America and export more goods. Doesn’t a weaker dollar help that process?

FRANK: Yes, that is what he favors. Exports are cheaper, international travel and imports are more expensive.

However, the US has a trade deficit that is unlikely to change in our lifetime. A declining US dollar increases that deficit.

DENNIS: Regardless of which party is in power, US politicos seem hell bent on spending trillions more in deficit spending. The government has to increase interest rates to attract foreign investors.

Recently treasury rates have more than doubled, yet the dollar still went down internationally. I saw a quote recently, “The US deficit isn’t a number, it’s a warning!” What is the world telling us?

FRANK: In my early days as a bond trader US Treasury rates stood as the benchmark with most foreign markets higher than the global “risk free rate.” Today, for the most part, it has reversed, most first-world countries are able to obtain financing at a lower cost than the US.

With deficit spending continuing, inflation will continue and the world demands a higher risk premium.

DENNIS: In your recent bulletin you outlined currencies that look most favorable to you today….

FRANK: I do like the Norwegian Krone and Australian dollar. Chuck and I call them a commodity currency where the economics are dominated by mineral/energy exports.

Some consider the euro as a US dollar offset; however, it does not have the exported goods like the first two.

DENNIS: One final question. Investors can diversify by opening foreign accounts with true offshore money managers – along with their associated minimums and fees.

While I encourage readers to always max out their 401k programs, it’s well documented that US investment advisors are not allocating a realistic amount to protect against the inflation bogeyman.

You and Chuck started as a great bridge between having an offshore money manager and still being able to diversify out of the US dollar. Can you give us some history, and bring us up to date?

FRANK: Chuck and I started the WorldCurrency™ deposits back at Mark Twain Bank in 1986, then continued to offer them at EverBank. Not all investors have the means, or inclination to send funds offshore, so we tried to fill the void.

Now merged into big banks, these small departments generate much of their income in fees. While they may say there is no fee, the transaction cost to trade currencies may be 3-6% above the institutional spot rate. Battle Bank charges 0.75% even for small trades. These transaction costs make it hard to make a profit.

Foreign currencies, like gold, provide a hedge against dollar erosion. There is some risk involved. In 2025 investors gained versus the USD, in some years it may decline. Most of our investors are looking at the long-term decline in the USD and diversifying.

Dennis here. I’m very concerned for the next generation. Money managers, 401k, etc. are not protecting the buying power of their life savings adequately. I saw what Carter year inflation did to my parent’s life savings. Devaluation is just a matter of time….

Savvy investors need to work around that with other options. Owning gold, and diversifying into foreign currencies provides necessary insurance.

On The Lighter Side…

I hope everyone had a great Labor Day weekend. That signals the beginning of football season. I don’t enjoy big teams playing smaller opponents, running up the score. It sure looked to me like Western Michigan beat Big-10 powerhouse Michigan until the officials decided to put one second left on the clock and the second hail-Mary was a success.

Thank you to all the kind readers who dropped me a note last week about my out-sleeping the cat. Energy is slowly returning and we are looking forward to heading to Florida next week.

I’ve come to realize how much our weekly articles, and reader feedback means to me. I may skip a week occasionally, but I enjoy writing when there is something I am passionate about. This week is a great example. I fear our children will work hard, play by the rules, save enough to retire because they know they can’t depend on Social Security and see their life savings destroyed because they were not adequately protected against inflation.

I just don’t see how the US can continue to pile up trillions in debt without eventually devaluing the dollar to survive. Roosevelt did it about 100 years ago, and we are about due again….

Quote Of The Week…

“Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by fiscal policies of statist governments.”— Ayn Rand

And Finally…

Friend Fred M. shares some truths about rural Indiana for our enjoyment:

And my favorite:

• By the way…. if you want to talk to God in Indiana, it’s a local call.

Until next time…