B.M. writes with a question that must be bugging many people who are wishing to retire abroad: " I plan to make a permanent move to Europe in the next one or two years. However, in the meantime I will earn dollars, most of which I will save. By the time I create this pile of cash savings, it may be worth only a cup of coffee in Germany.

"My goal is to buy an apartment in Spain. How can I maintain the value of my U.S. earnings so that I can afford my European dream? Is there something I can buy with dollars that will retain any sort of value towards being invested in euros? I am a straight index investor and I have no debt at all or payments of any kind."

There are two simple ways to deal with this issue. One is to buy shares of an international bond fund that doesn't hedge its portfolio for currency changes. American Century International Bond (ticker: BEGBX) and T. Rowe Price International Bond (ticker: RPIBX) are among the very small number of funds that don't hedge. As a consequence, part of your return comes from the underlying bond portfolio and part comes from the performance of the dollar relative to other currencies. Both are no-load funds and have minimum investments of $2,500.

When the dollar is sinking, you'll enjoy great returns. When the dollar is rising, these funds will do poorly compared to domestic bond funds. Both funds, for instance, had annual losses in 1999, 2000, and 2001. The average intermediate term domestic bond fund also lost money in 1999 but provided attractive returns in 2000 and 2001.

In the 12 months ending November 30th, BEGBX provided a total return of 16.59 percent while RPIBX provided a total return of 14.37 percent. Of the two funds, BEGBX has the superior track record. According to Morningstar it has provided a higher return over the last 12 months, 3 years, 5 years, and 10 years than its T. Rowe Price alternative. Both funds, however, have done better than the average domestic intermediate term bond fund over all those time periods. You can compare the funds by visiting http://www.morningstar.com/, clinking on "funds", and then typing in the fund ticker.

If you have an advisor and are willing to pay a 4.25 percent front-end load, Templeton Global Bond Fund (ticker: TPINX) uses very limited currency hedging, carries emerging market debt, and has limited dollar exposure. It has done better than both no-load funds over the measuring periods. Another fund to watch is PIMCO Foreign Bond---unhedged (ticker: PFUAX). Launched last July, this fund doesn't have much of an operating history but its pedigree makes it likely that its performance will be respectable.

Three Unhedged International Bond Funds
Investment 12 mos. 3 yr 5 yr 10 yr Exp. Ratio
BEGBX-American Century International Bond 16.59 17.09   9.77 7.70 0.84
RPIBX-  T.Rowe Price International Bond 14.37 15.25   8.20 6.84 0.91
TPINX-Templeton Global Bond A 17.86 17.83 17.01 8.93 1.13
Avg. Domestic Intermediate Bond Fund   3.93   5.01   6.53 6.77 1.08
Source: Morningstar Principia, November 30, 2004 data. For current data, visit http://www.morningstar.com/

Another approach is to invest in certificates of deposit in other currencies. You can do this online with Everbank, http://www.everbank.com/. It offers minimum $10,000 denomination CDs in a variety of currencies, including the euro. It also offers CDs with returns based on commodities, oil, and strong central banks.

Also, before you get too discouraged, there are three other things that may ease your move to Europe.

First, on a purchasing power parity basis (economist talk for comparing what you can actually buy with a currency) the euro is way overvalued. It may become even more overvalued, of course, but overvaluations tend to be self-curing--- eventually.

Second, Spain is one of the fastest aging countries in Europe. It also has a very low birth rate. As a consequence, its population is expected to decline by nearly 25 percent over the next 50 years. Barring major immigration that means your future housing may be a bargain, whether you rent or buy.

Third, as in the United States, the prices you experience abroad will vary with where you choose to live. Just as New York is more expensive than Little Rock, Barcelona or Madrid will be more expensive than a small country village in Spain.