Welcome to Money for the Rest of Us. This is a personal financial show on money. How

it works, how to invest it, and how to live without worrying about it. I'm your host,

David Stein, today is episode 364. It's titled, Should You Head Your Foreign Stock Exposure

Against Currency Fluctuations? In June 2020, we added a new holding to the Money for the

Rest of Us Plus portfolio examples. I also added it to my portfolio. It was the Wisdom

Tree Japan small cap dividend ETF, DFJ. The thesis was that Japan, despite some of its

demographic challenges, was growing faster than the US on a per capita GDP basis and had

done so for a decade. Overall earnings, as opposed to earnings per share, had also grown

faster in Japan than the US. The allocation to the small company dividend paying Japanese

stocks allowed us to benefit from low valuations and above average earnings growth for a country

that had been less impacted at least at the time by the COVID-19 pandemic. The unemployment

rate in Japan was low at 2.6%, the overall case level of COVID was low as was the fatality

rate. It seemed like a prudent way to increase stock allocation at attractive valuations. And

generally speaking, the ETF has done very well. It's returned 12% annualized since it was added,

but it declined 8% this year since mid-September. Half of those losses is due to the yen

weakening relative to the US dollar. The ETF holds publicly traded companies that trade in

Japan and do business in the Japanese yen. I am invested through a US-based ETF that calculates

the net asset value in dollars. Consequently, if the yen weakens relative to the dollar,

then that lowers the overall return. If the yen strengthens relative to the dollar,

then that will increase the returns. Right now, one dollar is worth about 114 yen. It has varied.

In 2012, one dollar was worth 80 yen. That meant that when you converted a dollar to yen,

you did not get as many yen because the dollar was weaker. In 1999, one dollar was worth 145 yen.

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