Why do investors still invest in the US when the US$ depreciates almost daily against most major currencies?

US$ has for example depreciated 60% against the Euro what's the point in investing in US$ when the currency depreciates almost like a banana republic currency. A stock can appreciate by 40% but when the Euro gains from 0.85 in 2000/01 to 1.34 in 2007 any investment in a US$ denominated company doesn't make sense.

Even if you consider an investment in the Dow Jones or SP500, a Global investor would have lost money since 01 as a result of the depreciating dollar, whereas a US citizen may be richer in US$ terms but will have lost in terms of buying power as well.

Thats a great question. It took me a long time to figure out this one.

Even though the Bush administration has been touting the "strong dollar", it is very clear that they are deliberating dropping the value to counter the foreign deficits.

However, the only reason I can think of is, Europe economies has been lagging behind US especially "old europe" of France, Germany and Italy. On the other hand, for the past 2 or 3 yrs, US companies has been on a roll plus elimination of some tax allow some company to issue dividends. I dont see any Europe companies issuing dividends.

Also, most assets are measure by US$. So in many ways, US companies are always "cheaper" and undervalued to invest rather than Europe which are more "expensive" and overvalued due to its appreciation of Euros.

Your figures apply if an investor is investing in American dollars, on a money market. However, I suspect you are asking why investors invest in American industries, businesses, real estate, etc. The value of stock traded, the value of a business and the value of real estate are not connected in a direct way with the value of currency in the world market.

If a person invests in a mutual fund that performs well, they could see an increase in value over the time that they hold it, even if the value of the dollar goes down.

When an American company manufactures something made with components and resources acquired here, with American dollars, then sells it, they may actually have a trade advantage on a foreign market where the value of currency is higher. Companies with higher currency values would have to compete with the American prices. (That, by the way, is why foreign countries try to levy import taxes, and why treaties like NAFTA tend to work in our favor.)

Do you live in Europe? If not, then why are you so worried about the cross rate of the EUR? You make dollars and you spend dollars. How many EUR you have is irrelevant if you aren't going to spend EUR. We are just coming out of one of the biggest bull markets in history. Everyone who was properly diversified has made a killing in the market in the past 3 years. The US stock market has outperformed virtually every global market for decades. Your point would only be relevant if you were a European investing in the US. And even if that were the case the US is and always will be the primier place to invest money.

Value. Seasoned investors always look for investments that offer value. So if dollar is at a 3 year low, like against the euro, people will buy it based on the assumption that it will increase back to a more normal value. The same is true with stocks. You can identify stocks that offer value and buy them wtih the goal of a great return. Such investments can be found at economicinvest.com where you can get a newsletter providing investment philosophy and value stocks that can grow your portfolio faster than the S&P.

There are a few things you need to consider:

(1) A foreign investor in the US may very well hedge its currency risk. Generally, the hedged rate of return should be about equal to the return that a US investor would earn.

(2) Look back further to when the Euro was introduced at 1.17 USD and EUR. You basically made your own case for an international investor choosing USD investments...because the rate went from 1.17 to 0.85. In other words, the unhedged European investor made a great return on buying USD investments.

(3) Investing is always done with foresight rather than hindsight. Sitting here today, can you confidently predict which way the currency return will go? Will you gain or lose money?

That would be like asking why do people smoke if they know they will die of lung cancer or why do people eat at McDonald's if they know they will die of a heart attack or why don't people exercise.

Not everybody is as smart as you.