In the waning days of 2009, many advisors and market analysts, when asked for their thoughts about the new year, opted to emphasize the risks. What if the Fed began raising interest rates? Did the deteriorating job market signal a double-dip recession on the horizon? Or would the Fed's willingness to keep lending rates so low, for so long, spark inflation as an economic recovery gathered momentum?

Amidst all the angst, it's reassuring to note that at least one of those clouds-the slumping U.S. dollar-may have a silver lining in 2010, in the shape of hefty returns from investing in non-U.S. markets and, in particular, from increasing allocations to emerging markets. True, Asian markets were hard-hit by the credit crunch of 2008, and few countries have been immune to the recession that followed. Nations from Iceland to Dubai and Greece have suffered major economic blows that make them areas to avoid. But that leaves investors with a lot of opportunities to diversify their holdings and reduce the risk associated with their portfolios, while also capturing some upside potential if the dollar continues its decline against other major currencies.

Take a look at Brazil. In 2009, its Bovespa (Ibovespa)index rallied 82.7%; the dollar's plunge against the Brazilian real last year turned that into a gain of about 145% in dollar terms.

Not every non-dollar investment will produce such dramatic gains. But veteran investors argue that this is the time to go global, with many overseas economies offering higher economic growth rates over the long term, with potential for extra upside if market guru Bill Gross and his Pimco colleagues prove correct in their predictions that the "new normal" means a falling dollar.

BEYOND OUR BORDERS

When it comes to global diversification, most advisors already have a lot of ground to make up compared with their European counterparts. "We're more parochial in our investment views than anyone in the world," argues Erik Davidson, managing director of investments for Western states at the private bank of Wells Fargo. "I have to remind our clients that 97% of the world's population, 75% of its economic production and two-thirds of the stock market capitalization is now outside our borders. And we should be following those trends in our portfolios."

Some financial advisors are already taking advantage of the long-term opportunity. Rob Lutts, president and chief investment officer of Cabot Money Management in Salem, Mass., has already allocated about 40% of the aggressive growth stock portfolios he manages for high-net-worth clients to emerging markets. "Keeping a high allocation to global markets, particularly emerging markets, gives you the potential for moderate returns in local currency to become bigger when they're translated into dollars. That's the gravy. The meat? That these are going to continue to be some of the highest growth markets around."

In 2009, many advisors kept their eyes closer to home. That was both logical and necessary: When the recovery got under way, the simplest way to benefit was to "go long" U.S. stocks and bonds; the best-performing equity mutual funds of the year were leveraged index funds tied to the Nasdaq 100, which soared as the markets staged a recovery. But with that low-hanging fruit long plucked, advisors like Lutts say the best place to seek out future gains is "beyond our own borders."

The reasons are many. While the U.S. economic recovery could be slow and growth is never likely to exceed a few percentage points a year, the emerging markets-and even some developed markets-may post more rapid growth rates, whether because they're rapidly developing economies (Brazil, China and India) or because they will benefit from high commodity prices in years to come (Russia and others). "There are reasons to doubt the viability of the dollar as the world's reserve currency over the long run," suggests Alexander Kozhemiakin, director of emerging-markets strategies at Standish, a subsidiary of BNY Mellon.

While the dollar is still the safe haven of choice in times of turbulence, the further the crisis recedes into the past, the more likely it is that the dollar's role will diminish as well, Kozhemiakin believes. That's a view shared by pundits like Warren Buffett and Gross, who believe the dollar's decline may be a longer-term phenomenon as the U.S. government's need to finance its burgeoning deficit, coupled with the Fed's determination to avoid a double-dip recession by keeping interest rates low, make owning dollar-denominated assets less appealing for investors.

DIVERSIFY, BUT CAREFULLY

For advisors hoping to transform both the reality of higher growth rates outside the United States and the possibility of a declining greenback into higher returns for clients, the challenge is figuring out how to accomplish it. The answer-be diversified, but be very picky-may be the only way to go, say Kozhemiakin and Don Gervais, global head of fundamental equity at Goldman Sachs Asset Management. Placing a big bet on any single high-growth region is foolish. Sure, China's stock market soared about 300% in two years, from 2005 until 2007. But what goes up can come down-are your clients prepared to put an outsize portion of their portfolios in a market that can move 7% or 8% in a day?