Foreign Currency Effects

Foreign currency effects is the effect of currencies changing in value relative to each other on the international market. Foreign currency effects will affect portfolios that have foreign assets.

For instance, if you have a brokerage account that’s entirely foreign assets, and your domestic currency rises in value relative to what you’ve got in there, then your foreign returns from your foreign investments have just been deflated a bit.

It’s kind of a constant win-lose or lose-win situation: when your currency is doing well, your foreign investments will be worth less...but when your currency takes a dip, your foreign investments will be your saving grace, since now they’re worth more.

If this sounds like a great way to hedge risk against your domestic currency, well, it can be, but not without risk. If another country’s currency declines too much, you might lose your assets altogether from foreign currency effects.

But YOLO, right?