Compardo, Wienstroer & Janes at Moneta –
If you live, invest, or have financial ties across borders, you’ll likely encounter foreign currencies. These currencies can rise or fall in value compared to the U.S. dollar, and those fluctuations can have a real impact on your wealth.
Why does this matter?
Let’s say you own international stocks. If those stocks are not “hedged” to the U.S. dollar (something some funds do automatically), their value will also depend on the strength of the local currency. If that currency weakens compared to the dollar, your returns may shrink. On the other hand, if the foreign currency strengthens, your dollar-based returns could see a boost.
This principle applies not just to stocks, but also to bonds and private investments. While many investment managers choose not to hedge currency exposure—believing currency shifts even out over time and add short-term diversification—it’s still important to understand how currency plays a role in your portfolio.
When Currency Matters Most
If you have international interests or plan to spend time abroad—whether it’s for work, retirement, property ownership, or education—it’s essential to think strategically about currency. Here’s how:
- Plan for international expenses: If you expect to pay for things like school tuition, mortgage payments, or living costs in another country, it helps to map out those cash flow needs in the local currency. Your financial advisor can model different scenarios to help you prepare.
- Watch for exchange rate swings: Currency values can change over time and impact your purchasing power. A strong or weak dollar can affect everything from everyday expenses to the value of your investments. Your advisor can help you monitor these trends and time your transfers wisely.
- Buying or selling abroad: If you’re planning a large overseas purchase or sale—such as a home or business—it’s wise to think about the timing of currency exchanges. Strategic planning can help reduce the risk of unfavorable exchange rate movements affecting the deal.
- Understand your overall exposure: Currency risk is a natural part of global investing. Depending on your goals and timeline, you may want to hedge part of that exposure through tools like forward contracts or options. Your advisor can walk you through your options.
Currency risk is one of the many moving pieces in global financial planning. By understanding how it works—and planning ahead—you can protect your wealth and make the most of your international opportunities.
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Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.
