If you follow the financial news even a little bit -- and even if you don't -- you can't help but hearing these days about the "weak" dollar. If this confuses you, you're not alone!

Heck, sometimes we get confused by all the economic gobbledygook that gets tossed around out there.

So let's talk for a few minutes about what's going on with the dollar and what it means for you. We expect the dollar to remain weak and decline even further, so it's important that you understand what all of this means.

Please don't think a weak and falling dollar doesn't affect you. It affects all of us.

Let's start with the current situation: The U.S. dollar continues to fall against the European currency (the euro), and against several other major currencies. (We experienced this first-hand during our trip to Italy this past summer. Everything was very expensive!)

Doesn't sound very good, does it? Actually, it's not all bad. We'd call it a "double-edged sword."
On the one hand, a weak dollar makes the U.S. less attractive to investors, both foreign and domestic.

In fact, the dollar's continuing decline this year has prompted a lot of people to invest in international stocks funds and international companies that make their money in currencies other than the dollar.

Because the dollar is still the most important currency in the world, many foreign nations actually own U.S. dollars, so foreign investors could force our interest rates higher relative to other markets to again make the dollar more attractive for foreign investment.

Think of it like your savings account.

The higher the interest rate, the more attractive the dollar. BUT, if interest rates are driven up, it will be more expensive for both people and companies to borrow money, which can slow down the economy.

That's the "Economics 101" explanation.

In the real world, the weak dollar means foreign goods and materials cost more, and guess who picks up the cost? We do.

U.S. companies don't hesitate to pass along the higher costs by raising prices. Just look at everything from oil to cars from Japan to television sets from Korea.

On the other hand, a weak dollar means that American goods are cheaper around the world, so our exports are more attractive in foreign countries. More export business could spark more production here at home, which would brighten our domestic productivity, create job growth in the manufacturing sector and lower our trade deficit (our big trade deficit also contributes to a weak dollar).

So as we said, the weak dollar gives us a bit of a mixed bag. The next step is to consider what the weak dollar means for your investment strategy.

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