The dollar is a long-term basket case. As measured by the U.S. Dollar index, the dollar is roughly half as valuable as it was in the mid-1980s as measured against a basket of foreign currencies. Just how far it may fall, and how fast, of course, is impossible to forecast. So how should planners play this dollar uncertainty to ensure the best outcome for clients?

"One thing is certain, planners can no longer ignore currency risk," says Axel Merk, president and chief investment officer of Merk Funds, the Palo Alto, Calif.-based group of currency mutual funds.

But whether a weaker dollar is good or bad for the U.S. economy is debatable. Industries and consumers heavily dependent on imported commodities like oil will face inflation when the dollar weakens. But exporters will find their global competitiveness improved. "An orderly decline of the dollar is a good thing," argues economist John Canally Jr., senior vice president and investment strategist at LPL Financial. He notes that it is particularly welcome news for exporters whose products become cheaper in the local currency. But he cautions the decline could lead to higher inflation.

In addition to energy and technology, most U.S. large-caps are global companies and also could potentially benefit, notes Brian Gendreau, market strategist with Cetera Financial Group. His favored method of implementing this point of view is through sector ETFs.

Tim Knepp, chief investment officer of Genworth Financial Asset Management, agrees: "Planners would be well served by having exposure to equities of companies that are selling into markets outside the U.S., particularly emerging markets."

Equities, however, can be subject to dramatic sell-offs. A less volatile approach is to invest in foreign fixed-income. High-yield foreign bonds offer attractive returns relative to Treasuries, and perhaps some safety as well-as long as you don't anticipate a foreign recession.

Of course the most direct hedge against a weakening dollar is to buy foreign currencies outright. But that also carries risks. "The problem financial planners face is the dollar may be weak but other major currencies aren't appealing either," says Giulio Martini, chief investment officer of currency and quantitative strategies at AllianceBernstein.

The euro has serious structural problems and may not survive in its current form. The yen, too, has a limited future as a strong currency. The pound is essentially a "small-scale version of the dollar," according to Martini. The Chinese currency has access problems with tight capital controls by China.

Martini likes Scandinavian currencies, the Swiss franc and the currencies of commodity-producing countries as well as emerging economies. The currencies of this latter group of countries can be volatile. Investing in a basket of currencies or via a currency mutual fund are possible solutions.

It also makes sense for planners to consider the larger, macroeconomic framework behind the dollar's long decline. Most analysts agree that the long-term weakening of the dollar can be traced in some fashion to the Federal Reserve's "easy money" approach. Merk, who is a pronounced dollar bear, says that "the dollar is being driven down down down, mostly because the U.S. seems to have a better printing press than the rest of the world."

Of course, disorder in currency markets is something else that advisors need to plan for, at least in the short-term. Despite recent deals, Greece could still leave the Eurozone, followed perhaps by Portugal. After the initial shock and upheaval, banishment of these weaker, peripheral economies, which have been holding the Eurozone back, would likely result in a strengthening of the euro against the dollar.

The bottom line is this: a weaker dollar and possible inflation are reasons for advisors to have a currency strategy in place going forward.

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