International portfolios collect currencies whether you asked them to or not. Shares in one country, bonds in another, a fund priced in a third, and a life paid for in a fourth. The statement converts them into one number so you can read it. That number is not the risk.
Three currencies, not one
The base currency is how the portfolio is added up. The investment currency is how a holding is priced. The spending currency is what you pay rent in. A gain in the base currency can be a loss in the spending currency, and the reverse. Ask your manager which one they are judging themselves by, and whether it is the one you live on.
A fund’s dealing currency is not a full description of what it holds. A dollar share class can own assets elsewhere. Look through, or ask someone who will.
Choices that are easy to make by accident
Converting a lump of savings into the new country’s currency on day one feels like settling. It is also a decision that the rate that day is the one you want for years. Keeping everything in the old currency while you spend the new one is a decision too. Neither is a rule. Both should be conscious, and sized so that a dull decade in the rate is survivable.
Some products offer hedging. Hedging can reduce one swing and introduce a cost, a counterparty and terms you should read. It is not a default setting for ‘expats’. If nobody can explain what is being hedged, you do not have a hedge. You have a word.
Name the currency you will actually spend
Currency risk is the chance that the money you hold buys less of the life you lead because exchange rates move. It is not a fault in a portfolio, and it is not removed by owning ‘international’ funds. Start with the currency of your spending: rent, school fees, living costs, and any debt. Then look at the currency of your salary, your pension and your investments. The gap between those is the exposure. A fund priced in one currency can still hold assets in another, so the label on the account is not the whole answer. Ask the manager or read the factsheet for the currencies inside.
Hedging, where a portfolio tries to reduce that gap, is a technique with a cost and with its own period of success and failure. Whether to use it is an investment decision for you and, if you have one, your adviser. This guide does not recommend a hedge, a currency, or a mix. It recommends that you can point to the currencies you spend and the currencies you hold, in writing, before you change anything.
Review the mix when life changes country, not when a headline does
A move is a reason to revisit the mix because your spending currency may have changed. A bad week for a rate is a weaker reason. Write down the spending currency, the main holding currencies, and any debt in a third one, and look at that page when you review the portfolio. If you hold cash in several currencies for near-term bills, that is a spending decision. It is not the same decision as the currency mix of a long-term portfolio.
Keep valuations that show currency as well as value. When you later compare a manager, or explain a transfer to a bank, those statements stop the conversation becoming a guess. If tax applies to a gain that came from the rate rather than from the asset, that is a question for a qualified adviser. Do not net it off in your head and call the result the investment return.
A practical checklist
- Name the currency you spend.
- Name the currency the portfolio is reported in.
- Ask what the large holdings are actually denominated in.
- Treat a wholesale conversion as a decision.
- Read any hedge: cost, term, and what remains exposed.
- Keep FX confirmations beside investment reports.
Questions to ask
- Which currency are you using to report performance?
- What share of this portfolio is already in my spending currency?
- Does this fund’s price currency match its assets?
- What does the hedge cost, and what does it leave open?
- What happens to withdrawals if the rate moves against me?
Common mistakes
- Equating a rising statement with rising spending power.
- Converting everything because the app offers a button.
- Ignoring currency because the assets are ‘global’.
- Hedging without reading the term.
- Judging a manager on a currency you do not use.
WiT Access provides general information and comparison resources. Nothing on this website constitutes financial, tax, legal or investment advice. Always consider obtaining advice from an appropriately qualified professional.
