While most of your assets will probably be in dollar-denominated investments, you should be aware of the risk of currency movements if you own stocks or bonds denominated in other currencies.When you buy an individual stock  or bond in another country, or a mutual fund that invests in foreign securities, the value of your investment fluctuates based on how many dollars it takes to buy a unit of the foreign currency.

In effect, when you own a British stock, for example, your money has been converted into pounds. If the value of the pound falls against the U.S. dollar, your British shares will be worth less if you were to sell the stock and translate the pounds back into dollars. Conversely, if the pound gains value against the greenback, your British stock will be worth more if you were to sell it. Currency movements, which swing day to day based on each country’s economic and political conditions, can therefore hand you substantial gains or losses.

prices are falling sharply because of a severe economic contraction,you face the risk that the value of your assets will drop just as sharply.This is what happened during the Great Depression of the 1930s, when stock
prices, real estate prices, and prices of just about everything else plummeted. To some extent, deflation was a problem in the early 1990s as well, particularly in commercial real estate, which had been vastly overbuilt during the boom times of the 1980s. The key to sidestepping deflation risk is to make sure you do not have too much of your wealth in assets that could get hit by a deflationary wave. Treasury bonds provide a good haven from deflation, for example, because it is safe to assume the government will always honor its obligations to bondholders.

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