CURRENCY + INTERNATIONAL INVESTING
It is imperative to have and maintain a diversified portfolio. However, the differing monetary policies makes it difficult to diversify investments. The Federal Reserve decided to leave interest rates unchanged although it raised rates last year. Europe kept the rate at a record low. In the wake of global market volatility, investors can counter its effects by investing abroad or mitigating currency perils in foreign investments.
When investing in a foreign market, you are basically normally investing in its foreign currency. The erratic exchange rates can either bolster or dent returns, or lead to losses. Predicting currency volatility is a difficult task, not to mention you need to track changes from time to time.
Now, are you brave enough to hedge currency movements? Here are your options.
Consider employing the traditional fully hedged exchange-traded funds if you believe you can ease the risk. The fund essentially minimizes currency risk and curb the effect of a strong US dollar on foreign investments. It looks after certain short-term opportunities to take the currency out of the equation.
If not, go with iShares adaptive currency hedged ETFs. Good for long-term allocations, investors need not to determine when and how much to hedge global markets. The fund is basically designed to adapt to changing environments naturally.
Realistically speaking, investing abroad is not as easy as you think. Thanks to volatility for it has made the guessing the timing of currency movements (almost) impossible. Having said that, may you be reminded of the following:
Currency volatility will always increase or decrease, depending on the prevailing market condition and other factors.
While US investments greatly bolster a portfolio, it still pays to invest abroad. Take advantage of appealing stock prices, long-term allocations, and near-term economic stimulus in several countries.
There are ways to contend with currency risk. Take the aforementioned ETFs for example.
Reducing currency risk in foreign investments is all about accepting and acting on the reality of market movements.
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