Currency Risk for Expats: Earning, Spending and Retiring in Different Currencies
Many expats earn in one currency, spend in another, hold savings in a third, and plan to retire somewhere else again. Every one of those gaps is a currency decision, even if you never made it on purpose.
Currency risk is not something you can remove completely. The aim is to understand it, so that exchange rates do not decide your plans for you.
Three currencies, three questions
Where do you earn? Your salary, bonus and any equity are already tied to one currency.
Where will you spend? Day-to-day costs today, and in the future if you move on, retire or send children to school abroad.
What do your investments hold? A global portfolio is usually held in a mix of currencies, and the US dollar tends to be the largest.
A simple example
Suppose you plan to retire in the UK and need £60,000 a year. You are saving in Singapore dollars. If the pound strengthens by 10% against the Singapore dollar between now and your retirement, the same plan needs about 10% more Singapore dollars behind it. The reverse is also true. Neither outcome is a mistake. It is simply risk you may not have planned for.
Matching assets to future spending
A common starting point is to hold more of what you will need in the currency you will eventually spend it in. Money for a UK home purchase in five years sits more comfortably in sterling. Money for a long retirement in a place you have not chosen yet needs more flexibility. Short-term spending money is best kept in the currency of the bills.
Hedging is not free
Currency hedging can reduce swings, but it has a cost, and the cost depends on the interest rate gap between the two currencies. It is usually more useful for money with a known date and amount than for a long-term portfolio.
Mistakes to avoid
Converting everything on the day you arrive or leave.
Leaving large cash balances in a currency you will never spend.
Judging a fund by its returns in one currency when you live in another.
Ignoring the cost of conversion. Spreads and fees add up on large amounts.
Planning around more than one currency?
Our Cash Flow Modelling shows how different exchange rates change your plan before they do it for you. Book a free introductory call to talk it through.
Exchange rates move and the example is for illustration only. It is not a forecast. This is general information, not advice.
Valerius Wealth, a brand owned by Seif Abdel-Hafez, who is an appointed representative of Synergy Financial Advisers Limited - UEN: 201217738K | FA License No. FA100050; Seif Abdel-Hafez, RNF No, ASM300847152 is an authorised representative of Synergy Financial Advisers Ltd. Telephone: +65 9014 1415. Email: enquiries@valeriuswealth.com Website: www.valeriuswealth.com
The information contained on this website is provided for general informational purposes only and does not constitute financial advice, recommendation, or solicitation to buy or sell any financial product. The views expressed are solely those of the author and do not represent the opinions of any financial institution or regulatory authority. While efforts are made to ensure accuracy, no warranty is given as to the completeness or reliability of the information provided. You should not rely solely on the content herein for making financial decisions and are strongly advised to seek independent, qualified financial advice tailored to your individual circumstances. This advertisement has not been reviewed by the Monetary Authority of Singapore.
Comments