Q: What do you think of foreign bond funds as an investment? What is the thinking behind them -- i.e., are they considered a hedge against a falling dollar? -- L.E., Houston

A: The broad idea is that it's a big world out there, with lots of borrowers. Some markets may offer more opportunity than others. That can be said without any consideration of currency opportunities. All other things being equal, for instance, yields are somewhat higher in Europe, but much lower in Japan.

The second level of opportunity is as a currency play, provided the fund you invest in doesn't hedge away its currency risk. In funds that aren't fully hedged, you are seeking both the yield of the foreign bond and the benefit of currency gains if the dollar falls against other currencies. Indeed, there are two funds whose names tell you they are a bet against the dollar: Rydex Dynamic Weakening Dollar (ticker: RYWDX) and Profunds Falling U.S. Dollar (ticker: FDPIX). With expense ratios of 1.70 percent and 1.50 percent, respectively, these funds are for speculators, not long-term investors.

As outlined in my book "The Coming Generational Storm" (MIT Press, $18), I believe the dollar is in a long-term secular decline against other major currencies. While many commentators blame this on (1) the federal deficit or (2) the trade deficit, the root cause is more likely declining trust in the value of our currency as the cost of funding Social Security, Medicare and Medicaid continues to soar.

This problem was mentioned by Federal Reserve Chairman Ben Bernanke in his Jan. 18 Senate Budget Committee testimony:

"The deficit in the unified federal budget declined for a second year in fiscal year 2006, falling to $248 billion from $319 billion in fiscal 2005. ... Unfortunately, we are experiencing what seems likely to be the calm before the storm ...

"In fiscal 2006, federal spending for Social Security, Medicare and Medicaid together totaled about 40 percent of federal expenditures, or roughly 8 1/2 percent of GDP. ... By 2030, according to the CBO, they will reach about 15 percent of GDP."

Sadly, foreign fixed-income is one area where ETF registrations have been relatively slow. Although there are now ETFs that hold portfolios of euros, pounds, Swiss francs, Mexican pesos, Australian dollars, Canadian dollars and the Swedish kronar, there is only one "basket" ETF, the Powershares DB G10 Currency Harvest Fund (ticker: DBV). Unfortunately, it is a gimmicky fund because it buys some currencies long and sells others short, a strategy that has little to do with hedging against a declining dollar.

Most of the mutual funds in this area are load funds. I've used no-load American Century International Bond (ticker: BEGBX) in the Couch Potato Building Block portfolios with mixed results. It's a managed fund and returned 8.3 percent in 2006 after losing 8.2 percent in 2005.

Q: I am 73 and have been retired for 13 years. For years I've seen a plan that suggests having fixed-income assets equal to your age, or your equity assets equal to 100 minus your age. Recently, however, I've seen recommendations of 50/50 splits. What do you think of having higher allocations to equities for older people? -- M.D., by e-mail

A: The rule of thumb you cite is from a bygone era. It dates back to when the only thing you might invest in was domestic stocks and bonds. Today, portfolios need to be put together to reflect the entire world. That means including international stocks, REITs and even emerging markets stocks. Not gigantic amounts. Just enough to indicate you know sneakers are mostly produced in Asia.

The old rule of thumb also doesn't reflect the inflation realities of today's world or increases in life expectancy. As a consequence, many financial planners and investment advisers now suggest that retirees should hold more of their assets in broadly defined equities.

A related trend is increasing recognition that investors can hold more equities if they take less risk in fixed income by investing in short-term to intermediate-term obligations. This is particularly true in markets like the one we now have, where money market fund yields are about the same as long-term bond funds.