Managing Currency Risks for an International Retirement
Currency risks are a fact of life for most cross border families, and many tend to be somewhat unbalanced in their financial holdings. In this video, we explain some of the main foreign exchange risks and provide answers on how to mitigate them.
Key topics to be addressed:
• Introduce the need for currency diversification of your assets
• Examples of how currency exposure can harm your financial health
• A plan for how to achieve global currency balance
• How to use mutli-currency accounts in the U.S.
Hello and welcome. In this video we’re going to discuss managing currency risks for an international retirement.
For cross-border families, currency risks are always an issue and in general retirement assets should match your retirement destination, if known. In practice, many of our clients don’t know where they’re going to retire or it might be in multiple countries. So for that reason we always recommend a global diversification of their assets: both among currencies and among their other assets and their exposure to the world economy. Being overly exposed to one currency is a big financial risk.
I’d like to give an example of a client of ours. We work with the lady who is European and for many years lived in the US, worked in the US. She retired and moved back to Europe with about a million dollars in a retirement portfolio. She left it in the US with a broker here in the US and invested it very conservatively. The problem was it was 100% in US dollar bonds at a time in the early 2000’s when the Euro rose about 50% relative to the dollar, causing a massive loss in her buying power. So it is important to think about it in retirement.
Now it’s not necessarily where your accounts are located. People think sometimes they need to have an account in London, an account in Japan, an account in the US. Absolutely not, it’s really about where are the underlying assets that you own. For example within an account here in the US, we can own a German bond, a local bond, which is denominated in Euros in pays interest in Euros. We can also in a Brazilian stock that pays dividends in Reais.
Now, once our clients retire they often retire to their home country, but not always. We can build a customized portfolio and by local bonds and local dividend-paying stocks on their local exchanges which pay interest and dividends in their home currency. That’s one really good way to help manage currency risk.
We use accounts based in the US for all of our clients and then manage them globally and it really works out wonderfully for cross-border families. Over the last couple years we’ve added the ability to offer multi-currency accounts, which is relatively new here in the US. It allows us to buy and sell foreign securities, to translate currencies and even hold currency balances and wire money in and out to the country very, very easily.
You know really the US is a fantastic destination or location for where to hold a globally portable portfolio. It really does work no matter where in the world you live. Thank you.