- One way to invest in foreign currencies with IRA funds is buying shares in currency Exchange-Traded Funds. Investment in ETF shares is accomplished by buying the shares of the selected funds through an IRA brokerage account. Currency ETFs track the value of individual currencies or a basket of currencies against the U.S. dollar. If the dollar weakens against the selected foreign currencies, the price of the currency ETF shares increases.
- The currency funds will be either an ETF or an Exchange-Traded Note. A currency ETF buys futures contracts on the selected currency and invests the balance in Treasury bonds. A currency ETF pays dividends to investors if the interest earned exceeds the expenses of the fund. The returns of a currency ETF may vary from the actual currency exchange rate due to the use of futures contracts. An ETN is a financial obligation of the issuing fund company. A currency ETN accurately tracks the selected currency values, but never pays any income to an investor.
- Currency exchange rates tend to be cyclical and do not offer long-term growth possibilities. The use of currency ETF/ETNs in an IRA should be viewed as short- to medium-term trading vehicles. For an investor who forecasts the long-term collapse of the U.S. dollar, there are other options, such as a gold ETF, to provide better returns than long-term currency investments. Avoid the use of any leveraged currency ETFs in an IRA account.
- Currency ETFs or ETNs are available for all of the major foreign currencies including the euro, British pound, Swiss Franc, Canadian dollar and Japanese yen. Other less widely followed currencies also have funds including the Russian ruble, Mexican peso, Indian rupee, Brazilian real and South African rand. ETF/ETNs are also available to track a basket of foreign currencies. Currency groups include Asian currencies, emerging market currencies and carry trade currencies focused on the economies with the highest interest rates.