What will the falling dollar mean for my portfolio?

Changes in value of the Australian dollar can have a big impact on investment portfolios. This is pertinent now as the huge rise in the $A over 2001-2011 is now going into reverse.

For Australian investments the initial fall is a negative as it prompts foreign investors to retreat. But once the $A bottoms it's a positive as it makes Australian companies more competitive.

The big impact is on overseas investments. A fall in the $A directly boosts the value of overseas investments - a 10% fall in the value of the dollar means a 10% rise in the value of your overseas investment, providing you haven't put it into investments that "hedge" back to Australian dollars. So the fall is good for those already invested overseas.

For those considering investing overseas, the key is whether the $A will continue to decline.

Our assessment is that it probably will as the surge in the supply of commodities, combined with slower growth in China and the likelihood that the US Federal Reserve will raise interest rates ahead of our Reserve Bank, will work against the $A, which we see heading to US80 cents or below.

As such it makes sense to have a greater exposure in overseas assets than during the past decade.

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