(MONEY Magazine) – Q I'm a nonwealthy person looking for a way to invest in, and benefit from, the eventual appreciation of the euro. How can I make a small investment? --Marilyn Martin, Russellville, Ark.
ANSWER Hmm. What makes you so sure the euro will appreciate? Although dollar pessimists believe that the euro will replace the buck as the world's premier currency, there is no way to predict if and when that scenario might play out. The dollar's rebound so far this year, for example, caught plenty of professional investors by surprise.
Forget direct investing in the euro, but you are onto something. No one can know where economic growth will soar or how currency fluctuations will play out, so most people should keep at least 20% of their stock portfolio invested abroad. The smartest way to do that is by investing in broad-based international mutual funds that don't try to shield against currency fluctuations. Two choices from the MONEY 50: the Vanguard Total International Stock Index Fund (VGTSX; 800-851-4999) and the American Century International Bond Fund (BEGBX; 800-345-2021).
And if your heart is still set on trying to play the euro, you can buy the iShares MSCI EMU index (EZU; $75.50), an exchange-traded fund that invests in eurozone stocks.
Q I can repay my $75,000 student debt in about seven years if I pay $1,000 monthly instead of the minimum, now $245. Should I boost my payments on the 2.8% loan? --Capt. Bret A. Moore, Iraq
ANSWER Stick to the minimum. Sure, there's an emotional payoff to eliminating the debt early, but the question you need to answer is whether you can get a better return on your money by investing or by prepaying the loan. Given the low rate of interest you're paying on the borrowed money, it makes sense, after shelling out your $245 minimum, to take the rest of the $1,000 and invest it in a mutual fund instead.
Assume, for example, that you deposit your spare $755 a month in a fund that gives you a 7% annual return. After seven years, you'll have about $81,000 in savings. "You get more bang for your buck if you invest the money," says Patricia Konetzny, a fee-only financial planner in Maynard, Mass.
Moreover, the effective rate of interest that you will pay on a student loan may be even lower than 2.8%. Your combat zone paycheck is tax-exempt, but student-loan interest is deductible for people whose modified adjusted gross income is less than $65,000 if single or less than $130,000 if married and filing jointly.