4 ways to invest in dollars
9/28/2022
The more unstable the economy at home and abroad, the higher the preference for the dollar. Investors want to buy the US dollar, which is considered the safest in the world, rather than the Korean won, which is an emerging country. If the value of the won sharply falls against the dollar, even if it is the same 10 million won, the difference in actual assets between those who own the won and those who own the dollar widens. So the rich secure a certain percentage of their assets in dollars.
This is because it has a diversification effect and can balance assets even if the global economy is in turmoil. So, what is the easiest way for beginners who are just starting out in financial technology to invest in dollars?
The first is foreign currency deposits. It's called a dollar bill. The interest rate is only 1% per annum, but depositors are protected up to 50 million won without deducting tax on profits, so it is good for beginners to access. Comprehensive financial income taxation imposed on annual financial income exceeding 20 million won is also exempt.
Foreign currency deposits are handled by most commercial banks, and if you open a bank account, you can buy dollars, yen, or euros. When you buy a dollar, it is converted into dollars according to the exchange rate that day and is stamped in your bankbook. If the dollar rises later, you can sell it and receive it in won or withdraw it in dollars. If you have a lot of dollars left when you return from a trip, you can put it into a foreign currency deposit.
The second is dollar RP. This is called a repurchase agreement. Bonds sold by securities firms on the condition that they be bought back later. Securities companies invest their customers' money in safe dollar-denominated government bonds or high-quality corporate bonds and return them when they earn a profit. It can be invested from as short as a week to as long as a year, so it is not bad for those who do not want to keep their short-term funds in a savings account or CMA (wealth management account).
The third is a dollar ETF (exchanged exchange-traded fund). A dollar ETF is an index fund that tracks the US dollar exchange rate, making profits as the dollar exchange rate rises and losses as the exchange rate falls. KODEX US Dollar Futures and KOSEF US Dollar Futures are representative examples.
There are also inverse ETFs that invest in falling dollar exchange rates. ETFs are known as products that combine the strengths of funds and stocks. A fund is a diversified investment because it puts several stocks in one basket. Stocks can be bought and sold freely, but the risk is high because they are concentrated investments. By combining the advantages of these two ETFs, they can be freely traded like stocks, there is no transaction tax, are diversified investments, and can be invested in both rising and falling markets. It is worth a try for those who have been burdened with stocks and funds.
The fourth is to buy US stocks directly. They exchange Korean won into dollars and then buy stocks such as Apple, Amazon, Microsoft, and Alphabet when the US stock market opens. In order to trade overseas stocks, you need to open a separate account with a securities company and have money converted into dollars in the account. If the stock price of the U.S. stocks I bought rises, the first is market price gains, the second is dividend income (American companies have a mature dividend culture), and the third is foreign exchange gains due to the increase in the dollar exchange rate.
However, investment in overseas stocks requires 22% capital gains tax on profits, and requires a lot of study and investment experience, so you need to consult with an expert.
