A quick financial advice in this uneasy time

It is important to safeguard yourself from the currency risk. The dollar may weaken against major world currencies such as pound sterling and Euro. Depreciation of the dollar is a possibility that is awaiting us in the future as the government increases the supply of money and U.S. economy continues to deteriorate.

In order to hedge currency risk a wise investor would be advised to exchange US dollars for foreign currency such as yen, Canadian dollars, pound sterling, Euro, etc. An alternative method of hedging currency risk would be to invest in international treasury of foreign sovereign nations such as Japan, Italy, and Germany.

The SPDR® Lehman International Treasury Bond ETF is to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Lehman Brothers Global Treasury ex-US Capped Index (ticker: LTXUTRUU). Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs. The Lehman Brothers Global Treasury Ex-US Capped Index includes government bonds issued by investment-grade countries outside the United States, in local currencies, that have a remaining maturity of one year or more and are rated investment grade (Baa3/BBB-/BBB- or higher using the middle rating of Moody’s Investor Service, Inc., Standard & Poor’s, and Fitch Inc., respectively). Each of the component securities in the Global Treasury Ex-US Capped Index is a constituent of the Lehman Global Treasury ex-US Index, screened such that the following countries are included: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Greece, Italy, Japan, Mexico, Netherlands, Poland, South Africa, Spain, Sweden, Taiwan, United Kingdom. In addition, the securities in the Global Treasury Ex-US Capped Index must be fixed-rate and have certain minimum amounts outstanding, depending upon the currency in which the bonds are denominated. The Global Treasury Ex-US Capped Index is calculated by Lehman Brothers using a modified “market capitalization” methodology. This design ensures that each constituent country within the Index is represented in a proportion consistent with its percentage with respect to the total market capitalization of the Global Treasury Ex-US Capped Index. Component securities in each constituent country are represented in a proportion consistent with their percentage relative to the other component securities in the constituent country. Under certain conditions, however, the par amount of a component security within the Index may be adjusted to conform to Internal Revenue Code requirements.

The major risk components inherent in the security are default risk, interest rate and currency risk.

Link to the ETF

SP Citigroup International Treasury Index Series_Factsheet

Mutual Fund Expense Analyzer

Use the ShareBuilder.com brokerage firm to trade this security because retail investors gain the opportunity to have the dividends reinvested for free. When dividends are immediately reinvested the retail investor gains about 10 basis points more than the investor who accumulates his dividends as a cash balance in the brokerage account.

Journal Article in The Journal of Business

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Investing in tax-differed US I Savings Bonds is a good way to save for retirement (assuming that the government does not default on the promises to pay back its debt). Every citizen in the US has the right to own up to $30,000 of I savings bonds. The bonds mature in 30 years and should be cashed out upon retirement. Ideally, when an individual reaches the age of 30 she should start putting money away in I Savings Bonds. When one reaches 60 years of age bonds will cease paying out coupon payments. Upon cashing out of the bonds taxes are paid at the appropriate tax rate. The coupon payments are determined by the level of inflation and fixed premium (set at the issue date of the bond). The inflation portion of the interest rate is adjusted semi-annually. In this case U.S. I savings bonds work like treasury bonds invested in a 401(k) or Traditional IRA accounts.

Series I Savings Bonds information at Treasury Direct