Markets

The Global Indicator I'm Keeping An Eye On

This year marks the 100th anniversary of Albert Einstein's General Theory of Relativity. Einstein is often portrayed as a lone genius who made his historic scientific breakthrough while working as a patent clerk.

But despite his lone genius label, Einstein was smart enough to know that collaboration was the best way to take on a challenge. He frequently discussed his ideas with friends and family. In fact, he referred to his friend and engineer Michele Besso as "the best sounding board in Europe."

As I reflected on all that I was thankful for this year, I thought of all the subscribers to my premium newsletter, The Daily Paycheck .

My readers are my sounding board -- my touchstone.

One of The Daily Paycheck's primary missions is to help investors achieve a more financially secure retirement. While this is clearly an easier task than solving one of the great scientific mysteries of all time, it is a challenge that is made easier with a group of like-minded investors -- and the helpful ideas and suggestions from The Daily Paycheck's readers.

While I can't respond individually to the many emails I receive, I assure you that I read every one. I often use them to guide the topics or securities I discuss in my newsletter. And when I get the same question or concern from a number of subscribers, I try to share it with all of my readers.

In the past month, I received a number of inquiries about a change to an International Monetary Fund (IMF) policy and whether it would lead to the "end" of the U.S. dollar's status as the world's reserve currency.

Most people are familiar with the IMF's role as a lender to troubled economies. It was one of Greece's primary lenders during the country's debt crisis in 2010. But overall, the IMF's role is to help stabilize global currency exchange and facilitate the growth of international trade. And within that role, it keeps a large reserve of a mix of global currencies called Special Drawing Rights ( SDR ).

Every five years, the IMF evaluates the appropriate mix of currencies for the SDR. The recent currency decision for the next five-year period was more newsworthy than normal, because the IMF decided to include the Chinese renminbi (or yuan).

This decision resulted in inflammatory headlines such as:

"U.S. Dollar Replacement to be Revealed"

"What Happens to the U.S. Dollar if the IMF Announces a New Reserve Currency this Fall?"

So it didn't surprise me when I got a few questions from readers like the one below.

Q:If the IMF removes the USD as a reserve currency and adds the yuan, how is that going to affect your Daily Paycheck portfolio? Would you consider buying precious metals? Which of your stocks will be affected the least and the most? Thanks.

A: On November 30, the IMF did indeed add the yuan to its mix of currencies. In the next five years, 11% of of the IMF's reserve fund will be in the form of the Chinese yuan or renminbi. The percentage of U.S. dollars, however, barely changed. In the last five years, the U.S. dollar made up 41.9% of the reserve. In the next five years it will make up 41.7% of the reserve. The biggest "loser" was the euro. In the past five years, it made up 37.4% of the SDR. Going forward, it will claim only 30.9% of the IMF's reserves.

Whatever the change, the SDR is only about 5% of the currencies held in global reserves. The world's central banks hold the mother lode. And the currencies they hold in reserve are far different than the IMF. For instance, central banks currently hold roughly 60% of their reserves in U.S. dollars -- a much greater figure compared to the SDR.

The addition of the Chinese yuan is symbolic, but not that significant to the world economy. Getting added to the SDR is akin to receiving the Good Housekeeping Seal of Approval. Former Federal Reserve Chair Ben Bernanke compared it to an elementary school teacher putting a gold star on a completed homework assignment.

And if we look at this chart of the U.S. dollar index, you can see that it is stronger than ever. If anything, it is a little too strong.

So to answer the question asked by many of my readers: I am not worried about the IMF's reserve policy. And I don't believe it will have any influence on my Daily Paycheck portfolio.

I do, however, keep an eye on the relative value of the world's currencies. And the relatively strong dollar is one reason why I have fewer commodity-related securities -- including precious metals -- and fewer international securities than I might otherwise hold.

Focus On What's Important

Bottom line, don't let worries about the dollar or other macro issues cloud your judgment too much. If you're an income investor, your focus should be squarely on generating paychecks.

Over the past six years, my portfolio has generated more than 2,185 "paychecks" for more than $92,000 dollars - and those numbers climb by the day. And between the capital appreciation and reinvested dividends, my model portfolio -- which started at $200,000 -- is now worth roughly $300,000.

In the last 12 months, I've averaged $1,656 dollars a month in dividend checks. That means I'm already collecting more monthly income than the average government retirement check. But one of the best parts about The Daily Paycheck strategy is that it works for investors of all walks of life -- whether you have $1,000 or $1 million to invest. That's why my publisher and I decided to get the message out to more people. So we created a special presentation that reveals exactly how my strategy works. You can check it out here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2016 StreetAuthority, LLC. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Founded in 2001 by industry veterans, StreetAuthority is a financial research and publishing division of Investing Daily. Our mission is to help individual investors earn above-average profits by providing a source of independent, unbiased — and most of all, profitable — investing ideas. Unlike traditional publishers, StreetAuthority doesn’t simply regurgitate the latest stock market news. Instead, we provide in-depth research, plus specific investment ideas and immediate action to take based on the latest market events.

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