BootsnAll Travel Community

Hello all!

I need some advice and these boards haven't let me down yet, so let me ask away.

Here's my situation.. I am planning a 12-18 month RTW trip leaving next spring (fingers crossed). So far I am happy to say that I'm doing a fairly decent job of sticking to my savings plan. Ah, but here's the rub.. My trip budget and $$ goal were set last fall and since then the dropping dollar has already caused me to raise my savings goal twice, and quite frankly I don't think I can swing a third increase without cutting out some countries.

So my question is this.. How best to save/invest so that my money isn't destroyed by inflation while saving and yet still remains available so that I can access it for travel? I'm hardly a financial expert, but from what I read the true rate of inflation is currently somewhere between 8 and 11%, which is more than any high-interest savings account or CD that I could open.

Any ideas? I'm starting to sweat this quite a bit, I've already sacrificed quite a bit to make this trip, I'd hate to think the lousy economy could put it in jeopardy.

Thanks very much for any advice,

Matthew

Matthew

A thread that has some gems of information....hopefuly will help with some of the questions you posed.

http://boards.bootsnall.com/eve/forums/a/tpc/f/209091657/m/68000329216

Thanks Madhu, you're right, that is a great thread and full of good information. But it doesn't really address the issue of how/where to save/invest to protect against a falling dollar.

The high-intest savings accounts often mentioned on BnA are great, mine currently pays just over 5%, but when you factor in food and gasoline to the government's inflation figures, you get something closer to 11%. So the money that I have been saving by brown-bagging it, skipping dinners and movies, wearing old clothes, as well as a host of other fun, yet not permitted by my savings plan activities for the last year is slowly shinking even as it sits in my savings account. This is the dilema. I know I am not alone in facing it, anybody currently saving for RTW trip in USD is in the same situation. So what best to do? I shutter to think what airfare is going to be like in May of next year.

Again, thanks in advance for any input/wisdom.

Matthew

Well, if you think the dollar is going to fall than you would want to own foreign currency. And, if you wanted to hedge your bets you would split your money between foreign currency and the USD.

But, short of having a bank account abroad, it is probably not worth your trouble in the short term. As the dollar would have to drop at least 5% to offset the return you are getting on your USD among other things.

Well this is theory that I just read about..have not practiced ...it is buying Gold. This is what my Fidelity magazine says " Gold prices have a strong negative correlation to the dollar..so funds that invest in hard assests maybe be worth a look "

Basically you can invest in foreign mutual funds but since its only for a year I wonder how much that will benefit...you might just make better than the interest rate at the bank but no guarantees with the market fluctuations.

This is the reality right now I wonder what else can be done myself. I see my dollars dwildling as well.

I personally do not plan to travel in Europe much and concentrate on Asia and Latin America where I can still travel with some power of my dollar.

With the short time frame you're dealing with, I wouldn't do anything different than you already are. If you have a bank account that is paying over 5% then keep it there. A lot of stocks aren't doing 5% these days and even if they were, it would be way to risky in the short run.

As halfnine says, you could try to invest in foreign currency, but that is risky as well and probably not worth the effort given your time frame and the amount of money you're dealing with.

Everyone and their mother is doing a story about the rise in gold prices. That means if you invest it it now, you're just setting yourself up for a fall. It would be a classic "buy high, sell low" mistake. If everyone is talking about the "hot" stock or commodity, then you're already too late most of the time.

I had just started asking myself the same question and came here to look for ideas. What I have found so far is that there are ETF (Exchange Traded Funds) for different currencies. These are bought through a broker just like a regular stock. Essentially each fund has a bank account in whichever currency you buy. You then receive the interest rate on the bank account plus or minus the change in currency values when you sell.

These funds have a 0.40% expense ratio on them. This means you will get a .4% decrease on the interest rate that currency is paying. For reference a S&P 500 expense ratio is usually .10-.15% while an actively traded fund can be 1.0-3.0%

I have not put in any money into them (wish I had about 2 years ago though). Here is the website about them and a second saying that for a little more hassle you can get a lower expense ratio.
http://www.currencyshares.com/home/CurrencyShares.rails
http://seekingalpha.com/article/38161-rydex-s-currencys...-the-expensive-truth

I've only been looking into this for a few days. My thoughts would be to buy into maybe 4 at the same amount, plus this amount left in US dollars. For example $10,000 would be $2,000 in 4 different currencies and $2,000 in USD.

I came back from a one year trip last year and won't be off again for 2-3 years. I plan on going overland from the US to South America (hopefully by motorcycle) to start with and keep going from there. Ideally this will be a several year trip and going all over. After watching what has happened to the dollar lately I feel this would be a good way to keep my spending power more even. Any thoughts on what currencies to buy? Do the Euro and Pound track each other fairly closely?

Hope this helps and am looking for ideas if anyone has done it before.

Brian

How ironic that I come back from lunch and find this article from one of the very few financial sites that has either impartial write ups or lets you know when they are biasing something. That would be Fool.com, not Yahoo news or finance.

http://news.yahoo.com/s/fool/20080318/bs_fool_fool/120585475410

I've been thinking about this too. A couple of options have been mentioned.

There's gold, but I'll be staying far away from that - way too iffy for me.

The stock market, which is down right now, but that's the time to buy. When eggs are on sale, it's time to stock up! Not a good idea for anyone looking to cash out and leave in the next year, though.

Putting savings into non-U.S. currencies is probably a safe bet, unless your chosen currency goes zooming down and/or the dollar goes zooming back up. It's not much more risky than a regular savings account, though, if you choose a solid currency.

If you're afraid you're going to get priced out of Europe (I'm guessing those would be the first countries to go), and you feel certain that the dollar will continue downward between now and your trip, just go ahead and convert your Europe money into Euros. Then follow your previous savings plan for the remainder of the time. I think those foreign currency CDs sound great (nice find minerguy!) - maybe you could find a good one to hold your Europe savings until it's time to take off.

Also - this may be useful to anyone else thinking about foreign investing (currencies, ETFs, or otherwise). E*Trade offers a product called a "Global Trading" account that lets you convert your dollars into several different currencies - british pounds, euros, yen, hong kong dollars, and canadian dollars - and store them together in one place.

The account is supposed to be a means for executing trades in several different stock markets, but you could also just convert your cash and leave it sitting there as a hedge against currency fluctuations. The downside is that it's a brokerage account, not a savings account, so you won't earn interest on the money, and the principal isn't insured like a savings account is. At any rate, it's a tool that might be useful to someone out there.

Thanks so much for the replies.

So since my last post on this thread I've taken the plunge and bought some silver. From what I understand it seems to have more potential upside than gold at this point (plus it's a whole lot cheaper, which is good:-). There is whole gold/silver sub-culture that I just stumbled on to, if you listen to them, well, then it's obvious what you should do, BUY GOLD & SILVER! But, well, I'm not so sure they are right. After much debate and studying of its fundamentals (possible shortage of physical supply, industrial uses, increased demand in China/India) I decided to get my feet wet in the precious metals arena.

In addition to my modest silver holdings, I am very interested in these foreign currency ETF's. The one that catches my eye is the 'Currency Shares Swiss Franc Trust (FXF)'. Of all the currencies, I would think the Swiss Franc would be the safest, I mean it's the Swiss Franc for crying out loud! It has been doing very well over the last few months, which causes my to echo the earlier concern raised when wondering if I may have missed the boom and found myself arriving on the scene just a little too late. Any thoughts?

Sadly, except for a quick trip to visit friends in Prague, Europe looks to be off my itinerary. Of course, the dollar could rise from the grave and things could change, but as it stands now, well, I don't see how.

Thanks again for the valuable info, much obliged to all..

Minerguy - thanks for posting that article.

I have an ING account that I have had my trip savings in. CDs went from 5.5% to 2.5% in less than 3 months - and I have definitely been bummed about the fact it was going to cost me like 1k due to the drop.

I looked into EverBank - and it looks pretty legit.

Glad to see there is some interest in this subject. I'm sure it has affected many of the people of this site, whether they realized it or not. Unfortunately, it is not interesting for most and harder to tackle even for those who are interested. I'll throw in my 2 cents and see what you think. Note: all of the below are my opinions and I do not claim them to be facts.

First as seen in my screen name I have a mining engineering degree. You'd think this would make me more interested but in buying metals or metal mining stocks, but I've never even considered it. One, I have ended up in the sand industry and don't have hands on experience with any metals. (Ok, that was fact). Two, Astrochump touched on the supply and demand of gold, but there is a bit more going on. I'm not going to guess on the percentages, but I would certainly say that well over half the of the gold produced each year is not put into industrial uses. It is made into jewelry or gold bars.

That means this supply is not consumed and available to be resold at anytime the owner chooses; take an old necklace to the pawnshop, sell gold coins, and so on. In India for example they use gold jewelery as savings and sell it when prices rise. Even in industrial uses the gold is not "consumed". All of this leads to the true supply of gold increasing every year since the stuff from last year has not really disappeared.

Gold prices end up changing due to perceptions of currency strengths and other items which are more difficult to define than simple supply and demand. Much more time, interest, and so on than I care to spend trying to determine (speculate) where it is going next.

Moving into currencies, they also work on supply and demand with some caveats. In the US the supply is determined by the federal reserve. In theory it is straight forward. The Fed lower interest rates, supply goes up, and the value decreases. In general that will match what happens, but not always. Up until recently the US was raising rates, but still decreasing in value. More on that in a bit.

Predicting what moves will be made is done every day in the bond market and by people paying a whole lot more attention than I (we) am to it. So you can't just cash in the day the happen. Also, different countries have factors they look at for when to change the rates (unemployment rate, inflation ...). The key values of a currency relative to another ends up accounting for strength of the economy (expanding or not and how fast), interest rates (higher the better), and net amount imported or exported.

Right now the US is lowering rates which allows the banks to borrow cheaper, but they don't trust consumers to payback the loans so their loan rates aren't decreasing as much. Of course they made too many loans they shouldn't have and shouldn't trust themselves either. You mean people took the "free" money they were giving away to flip houses??? Really the did? But why would they do that if they couldn't pay it back unless the home appreciated 20% in 5 months??? Anyways now they are taking their cheap loans and buying treasury bills or bonds with them and only making a little bit, but at least its better than losing money. It is quite a mess that I think will be around for a while.

I think I'll stop now before I go on ranting and get in even further over my head. If there are others interested or more enlightened please help out. Regardless this may at least make someone pause before jumping into any of this thinking its a sure thing and they've got it all figured out. And if you do have it all figured out send me a PM, no need to post!

Brian

Thanks for the great post Minerguy, as well as that ETF link.. Very interesting. There are so many factors to consider! I think the one thing that I've learned from researching the topic is that I still have sooo much to learn about it- especially investing any more money.

In other news, silver took a hit today and so did I. Such is my new life as a PM speculator :-(

quote:

The high-intest savings accounts often mentioned on BnA are great, mine currently pays just over 5%

Wow, where is your savings account? My ING account is down to 3% at this point.

Err, I am greatly embarrassed to report that to my surprise my savings account interest is now down to 3.01%. I hadn't really checked it since I opened it and well.. things appear to have changed.

I feel really dumb right now..

Anyone checked prosper.com ?

It's basically a peer lending thing. I opened an account simply because there is currently an offer of $25 to do so (conditions apply...you have to give a $50 loan..)

I'm doing well enough in the markets...but the amount of money I have in my brokerage account is becoming unmanageable versus the time I have, so something like this appeals to me even with the higher risk...the ROI can be pretty good.

The real draw down, at least for me, is...man, these pleas for loans from people who claim to be "financially responsible" and consolidating 35% CC debt into a 28% loan boggles my mind, and I have a tough time contributing to that.

I've looked at prosper.com, and an uncle that runs a credit union says its going to turn the credit industry upside down... at least when it comes to folks that can't get credit anywhere else.

So my sister and I actually just got a prosper.com loan to get equipment for our videographer business we are starting. I know this is not from an investor standpoint but just thought I would give a little input because there are all kinds of people using this for small business type loans that are not supported through banks without an actual business plan and for rebuilding credit and such. It is definitely going to change the credit industry because it is a bidding game. Once your loan amount is fulfilled then people can bid down the percentage rate. For instance you want a loan of $1000. 10 people loan you $100. 5 loan at 30% and 5 loan at 35%. There is 24 hours left on the bidding. Other people can then bid on your loan at lower interest rates which then knock other peoples bids off. Of course this type of bidding only occurs after the entire loan has been covered which is sometimes right before bidding ends which does not leave alot of time to get your interest rate bid down.

Okay sorry for the long post but I just thought I would give a little more information about the site.

Found another decent article
Want a Decent Yield on Cash Accounts?