Sell sterling – but how?

It’s time to sell the pound. My colleague Dominic Frisby makes a pretty compelling case in this morning’s Money Morning (Sterling is a screaming sell) that we’re at the start of another big move down in sterling. So if you’re a British investor, what should you do about it?

If you’re a trader, then the obvious answer is to spreadbet. Sell the pound against the dollar, the euro – virtually anything right now – and hopefully you should be able to turn a profit (although bear in mind that the vast majority of people lose when they spreadbet – so set stop losses).

But if you’re more interested in the long-term, then what should you do? The answer is to diversify your investments. You can’t just have 90% of your wealth sitting in UK-dependent stocks. The good news is that you can get plenty of global exposure in the FTSE 100 alone. The oil majors and pharma majors for example, make most of their money outside the UK and report in dollars.

It’d be a shame to restrict yourself to the FTSE though, particularly when you can get easy cheap exposure to most global markets through exchange-traded funds (ETFs). We’re keen on Japan (I’ve got a large chunk of my pension invested there). And it’s interesting to note that although Japan got slaughtered during 2008, the strong yen meant that, in sterling terms, the market ended the year virtually no lower than it began. Obviously this can cut both ways, but it shows the benefits of diversifying.

And the emerging markets hold plenty of other attractions. My colleague Jody Clarke recently wrote about some of the big ’emerging multinationals’ taking business off their Western rivals (you can read his piece here: How to profit as wealth and power head East). And there are ETFs covering most of these markets (Cris Sholto Heaton, who writes our free weekly email, MoneyWeek Asia, wrote a pretty exhaustive list of the Asian ones here: How to use ETFs to invest in Asia).

And of course, there’s gold. Gold tipped the $1,000 an ounce mark recently, close to its all-time dollar high. But in sterling terms it’s still quite a way off its record of near-£700 set in February this year. Gold is worth having in your portfolio because it will provide some protection against collapsing faith in fiat currencies in general. Sterling isn’t the only currency with problems – it’s just the one that everyone’s focusing on right now.

It’s easy to forget that less than 40 years ago, gold was still a crucial part of the global monetary system. With the dollar’s status as global reserve currency increasingly in question, gold’s likely to benefit from future upheaval. So having say, around 10% in your portfolio is a good insurance policy. Have a look here for more on buying gold: The best ways to invest in gold.