How Are You Able To maintain Your Cash From Losing Value

In uncertain economic times, it is wise to have a chunk of cash set on the sidelines. You need to have some sort of a safety fund plus you never know what opportunities might swing by in times of distress and undervaluation. You know, the I-wish-I-had-the-cash sort of scenarios.
The idea in and of itself is profound and simple. And it is easy to implement – if you have the cash of course. However, the excess volatility (over $4 trillion daily volume) in the currency markets can make it difficult to stay on track in terms of value and stability. Obviously, the purpose of keeping this kind of cash is not speculation. It is there to mitigate risk and have some sort of a safe haven as opposed to taking on additional, unnecessary and “out of context” risk. This is about wealth preservation.

So the big question then is, how do we avoid exposing our hard-earned cash to currency exchange risks?

Well, many people resort to the 50:50 model, where they have 50% of their cash in Euros and 50% in the mighty greenback. On the face of it, this model sounds reasonable. However, the fact that 75% of the EUR/USD is the reverse of the USD makes things different in reality.
To clear things up, let’s consider this example. Suppose you have $80,000 in cash and you want to hedge the risk using the 50:50 model. You withdraw $40,000 , exchange them into Euros and deposit them in a Euro-based account. And you leave the other 40K in your original Dollar-based account.
Now since 75% of the EUR/USD pair is the reverse of the US Dollar Index, you have 75% of your funds or ($60,000 worth) fully hedged. They are minus 100% correlated. If half of the 75% goes one way, the other half goes completely the opposite way – which is not bad, but why not have a full hedge when you actually can? After all, 25% is not a small percentage of your capital ($20,000 in this example).

Being Fully HedgedSo, there is a possibility for a full hedge in this case. Elliott Wave International has created the Stable Currency Index as a way to fully hedge your cash to prevent exchange rate fluctuation and maintain purchasing power. It can also be a hedge against currency defaults.

Composition of the SCIThe SCI is comprised of four equal amounts of the Swiss Franc, Singapore Dollar, New Zealand Dollar and the US Dollar.

 Pie Chart courtesy of Elliott Wave International

 EWI chose the currencies (one currency from each quadrant) based on political and financial stability. The US Dollar was included because it is a stabilizing factor and still the world’s reserve currency.

Proving EffectivenessIn this chart below (courtesy of Elliott Wave International), the Stable Currency Benchmark is the horizontal line at 1. There’s no question to its performance in having a fully hedged currency portfolio.

Courtesy of EWI

Investing in the SCIAccording to Elliott Wave International, you can invest in the Index using one of 4 ways:
◾If you are wealth-preservation oriented, you can, through Safe Wealth Consultants Ltd., establish a relationship with a Swiss institution under which you can buy currencies in a mix that tracks the SCI: clientservices@safewealthconsultants.com or (011 from the U.S.) + 41-21-966-7200. Minimum investment: 250,000 USD or counter equivalent.
◾Open an account at a safe bank that will obtain short-term government debt instruments in the four SCI currencies for your account.
◾Buy bonds, bills or certificates of deposit in equal portions in each SCI country.
◾Set up a bank account in each SCI country and fund it.
Regardless of your financial goals in life, it is always better to have wealth preservation on your list. Otherwise, you’ll lose purchasing power and value faster than you accumulate funds. It pays to be on the lookout for new and innovative ways to minimize risk in places where you don’t need it.