How to Invest in Dollar-Denominated Assets

Investing in dollar-denominated assets means placing your money into financial instruments whose value, returns, and principal are all expressed and settled in U.S. dollars. This includes various financial products designed to grow wealth within the U.S. currency framework. Many invest in dollars to engage with the stability and global influence of the U.S. economy.

Understanding Dollar-Denominated Assets

Dollar-denominated assets are investments where the underlying value, any interest or dividends earned, and the repayment of the initial investment are all tied to the U.S. dollar. This means that regardless of where the investor resides, the financial performance of these assets is measured in USD. For example, if you invest in a U.S. company’s stock, its price movements and any dividends paid will be in dollars.

Holding physical cash doesn’t yield returns and loses purchasing power to inflation. Investing allows dollars to increase in value or generate income, providing exposure to the U.S. financial system and its economic performance.

Direct Investment Options in Dollars

Several straightforward investment options allow individuals to directly hold and earn returns in U.S. dollars.

U.S. Dollar Savings Accounts and Certificates of Deposit (CDs)

U.S. dollar savings accounts allow individuals to deposit money and earn interest, offering quick access to funds. These accounts are federally insured up to $250,000 per depositor, per institution, providing security for your principal. Interest earned is taxable at the federal level, and may also be subject to state and local taxes.

Certificates of Deposit (CDs) are deposit accounts that hold money for a fixed period, from a few months to several years, in exchange for a fixed interest rate. CDs often offer higher interest rates than savings accounts, but early withdrawal incurs a penalty. CDs are federally insured up to $250,000, and interest income is subject to federal income tax.

Money Market Accounts (MMAs)

Money market accounts blend savings and checking features, offering interest earnings and transactional flexibility. They often offer competitive interest rates, higher than savings accounts, and include check-writing privileges or debit card access. MMAs are federally insured up to $250,000 per depositor, per institution.

While MMAs offer more access than CDs, they may have monthly withdrawal limits and often require higher minimum balances to avoid fees. Interest earned is subject to federal income tax. MMAs are suitable for short-term savings or emergency funds where liquidity is desired.

U.S. Treasury Securities

U.S. Treasury securities represent debt instruments issued by the U.S. government, considered among the safest investments globally, backed by the full faith and credit of the U.S. government. These securities include Treasury bills (T-bills), Treasury notes (T-notes), and Treasury bonds (T-bonds), differing in maturity periods.

T-bills are short-term securities maturing in up to one year, sold at a discount, with investors receiving face value at maturity. T-notes mature in two to 10 years, paying interest every six months. T-bonds are long-term instruments, maturing in 20 or 30 years, also paying interest semi-annually. Interest earned is subject to federal income tax but exempt from state and local income taxes.

Investing in US Markets Through Dollars

Beyond direct deposit accounts and government debt, individuals can invest in broader U.S. markets using dollar-denominated instruments, providing exposure to the U.S. economy and corporate landscape. These options involve more market risk but offer potential for higher returns.

U.S. Stocks

Investing in U.S. stocks means purchasing shares of companies listed on U.S. stock exchanges. Stocks represent company ownership, offering potential profit from price increases or dividend payments. Shares are bought and sold on major exchanges like the New York Stock Exchange (NYSE) and Nasdaq.

Stock prices are influenced by supply and demand, company performance, and economic conditions, leading to capital gains or losses. Capital gains from selling stocks are subject to federal income tax, with rates varying by holding period. Dividends received are also taxable, either as ordinary income or at lower qualified dividend rates.

U.S. Corporate Bonds

U.S. corporate bonds are debt instruments issued by U.S. corporations to raise capital, with all principal and interest payments denominated in U.S. dollars. Buying a corporate bond means lending money to the issuing company in exchange for regular interest payments, typically semi-annually, and principal return at maturity.

Corporate bonds offer higher yields than U.S. Treasury securities due to higher credit risk, as companies can default. Risk and yield vary based on the issuer’s financial health and credit rating. Interest income is taxable at both federal and state levels.

Exchange-Traded Funds (ETFs) and Mutual Funds

Exchange-Traded Funds (ETFs) and mutual funds provide diversified exposure to a basket of dollar-denominated assets, such as U.S. stocks, bonds, or other securities. These funds pool money from multiple investors to invest in various underlying assets, offering diversification to manage risk. ETFs trade on stock exchanges throughout the day, similar to individual stocks, with prices fluctuating based on market conditions.

Mutual funds are priced once daily after the market closes. Both fund types offer professional management and align with various investment goals, from income generation to growth. Distributions from ETFs and mutual funds, including capital gains and dividends, are subject to federal and potentially state income tax when held in a taxable account.

Steps to Begin Investing in Dollars

Investing in dollar-denominated assets involves practical steps, from choosing a platform to placing your first investment. Understanding this process simplifies it for new investors.

Choosing an Investment Platform

Select a suitable platform for your investment needs. For U.S. dollar savings accounts, Certificates of Deposit, and Money Market Accounts, banks or credit unions are typical providers. For investments like stocks, corporate bonds, ETFs, and mutual funds, an online brokerage firm is used. If interested in U.S. Treasury securities, you can purchase them directly from the U.S. Treasury through TreasuryDirect.

Consider fees, minimum investment requirements, available products, and customer support. Many online brokerage firms offer commission-free trading for stocks and ETFs, though other fees may apply. Some platforms have no minimums to open an account, while others require an initial deposit.

Opening an Account

After selecting a platform, open an investment account. This involves completing an online application, requiring personal information like your legal name, address, Social Security Number or other tax ID, citizenship, and sometimes employment details. Identity verification is routine, often requiring submission of government-issued identification.

The online application can often be completed in 10 to 15 minutes, though approval times vary. Some platforms may ask you to link a bank account for future funding.

Funding the Account

After opening your account, deposit funds. Common methods include electronic transfers (ACH) from your bank account, which take 1 to 3 business days to clear. Wire transfers offer a faster funding option, often processing within the same business day, but may incur fees.

You can also fund your account by mailing a check, though this takes longer for funds to become available. Some platforms allow direct deposit of paychecks or other recurring income. For larger transfers or moving an entire existing investment portfolio, a full account transfer from another financial institution is an option, which can take several business days to a few weeks.

Placing Investments

With funds available, you can select and purchase your desired dollar-denominated investments. This involves logging into your chosen platform, navigating to the trading section, and searching for the specific stock, bond, or fund by its ticker symbol or name. You will then specify the quantity and order type, such as a market order or a limit order.

A market order instructs your broker to execute the trade at the best available price immediately. A limit order allows you to set a specific price at which you are willing to buy or sell. After reviewing order details, confirm the transaction. While funding may appear immediately in your account balance, it can take several days for funds to fully settle before they are available for investment or withdrawal.