Choosing the right investments to grow your hard-earned money can feel overwhelming. Adding to this stress is the confusion over which currency your investments should be denominated in.
This concern often stems from the financial press, where predictions about the relative strength of one currency over another can distract investors from focusing on what truly matters.
The reality is, if you invest in a globally diversified portfolio (as you should), evidence suggests that the specific currency of your investments generally has minimal impact on the long-term outcome.
A global portfolio is made up of companies that operate in numerous countries around the world, and generate income in many different currencies. It is the earnings and growth of these companies that determine long-term performance, much more so than fluctuations in the investment currency.
The chart below demonstrates how companies across several major global stock indices generate a significant proportion of revenues from currencies and countries outside their home markets:
A study by Vanguard revealed that, over time, currency fluctuations tend to have less of an impact on global stock portfolios compared to other more influential factors, like asset allocation.
As such, when choosing the right currency for your investments, you should focus on your personal circumstances – particularly where you plan to spend the money you’re investing.
We generally recommend investing in a strong global currency (e.g. USD, EUR, or GBP), but the best choice for you ultimately depends on your life plans and where you intend to live in the future – not on short-term currency trends or predictions you may hear in the news.
