Currency fluctuation can be a risk or an opportunity, and therefore we can manage it in that way, especially for those that don’t ever plan on moving back to a US dollar based jurisdiction. When the Euro entered circulation in January of 2002 it traded at an elevated price of 1.1743 from its prior European Currency Unit (ECU) price parity with the dollar. In its first decade (plus four) we have seen it trade as low as 0.8252 in its infancy (October 26th, 2000) and then all the way to its near high last year of 1.3808 and the near term tumble back towards parity.
Derivatives, forward contracts and other mechanisms can be utilized to reduce currency risk, but these contracts tend to be expensive and also reduce potential returns. We would therefore recommend that Americans abroad, who expect to remain outside the US for an extended or indefinite period of time, need to manage their long-term currency risk by matching the currency denomination of their investments with the currency in which they expect to incur the bulk of their future expenses (such as home mortgage payments, college costs and retirement expenditures). For Americans abroad that expects to return to the US after only a few years, currency management issues are usually far less important.
Diversification is the key and that is why we would recommend a multi-currency portfolio of global assets. Americans typically are over-biased towards domestic assets (as are citizens from most countries), and this is even more of a risk to expats.
Get a complimentary copy of the American expat guide at https://www.omniwealth.eu/american-expat-financial-guide for more information about the financial planning process as an American expat. You can also visit www.dunhillfinancial.be and www.omniwealth.eu.