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I find the S&P500 to be interesting as a demonstration for currency risk. Denoted in US, it went up ~18% or so. For me as an EUR investor, it went up just 4.6%
by p0pularopinion 9mo ago
I find the S&P500 to be interesting as a demonstration for currency risk. Denoted in US, it went up ~18% or so. For me as an EUR investor, it went up just 4.6% when accounting for the loss of the USD. Comparing that to indicies that usually do not perform that well, Euro Stoxx 50 is up ~22% and MSCI Emerging Markets ~21%.
- baxtr 9mo agoI noticed this as well. I haven’t found a good cure for this other than diversifying globally.
- hahahahhaah 9mo agoEveryone wants to park some money and have other people work hard to increase the real value of said parked money. Not everyone can win big. Storing value is actually pretty amazing thing and that it can be profitable is magic. Of course the environment and poorest pays some of the free lunch.
- agobineau 9mo agoit really depends on whether or not there is a global capital shortage. this is very easy to do when the economy requires much more capital than is available. and in the inverse, it is self explanatory
- Mountain_Skies 9mo agoAn investor friend once told me that the US needs to always be in debt because treasuries give investors a risk-free place to park their money between investments. The sense of entitlement was astounding.
- lametti 9mo agoI don't think this is necessarily entitlement. There are heteredox but popular economic theories (such as MMT) that view public debt issuance at least in part as a method to satisfy the demand for private savings.
- positr0n 9mo agoThat sounds like just describing the way the current global system works, not entitlement. Transitioning to another system would work (and seems inevitable at some point in the next hundred years??) but oof it would be chaotic.
- dottjt 9mo agoI could be misunderstanding this, but you know that you can buy ETFs that are currency hedged? Taking Vanguard for example, VGS is global equities, but VGAD is global equities that are AUD-hedged (my home country). The only downside is that you pay more in fees (and they're less tax efficient). People generally don't bother with it though, because on a long enough time-line currencies usually revert to their long-term average, so if you're holding for retirement there's generally little point.
- rsynnott 9mo ago> The only downside is that you pay more in fees This is a _huge_ downside for index funds, though. Even quite a small fee difference has a huge compounding impact over time; people often miss just how much. AIUI, assuming you're investing in a global equity fund, currency hedging is almost never worth it. It _may_ be worth it in some cases if you're investing in a foreign index (eg S&P for Europeans), but even then not usually.
- dottjt 9mo agoIt depends if you forsee potentially having to sell before retirement. Or if it may just happen out of your own circumstances. Hedging is all about diversification at the end of the day. So it makes sense to hedge if you're coming close to retirement age.
- aswegs8 9mo agoTIL: currency moves have zero expected return
- dottjt 9mo agoYou also can't predict when you might need to sell you stake, so that's ultimately the value of hedging. If you're forced to sell in 5-10 years, then hedging would be valuable.
- AnimalMuppet 9mo agoLet's say I'm close to retirement. And let's say I'm in US dollars, and the dollar isn't doing well right now, and might continue to not do well for a long enough time frame to matter to me. On the other hand, my expenses will also be in US dollars. To what degree should I hedge against the dollar?
- dgb23 9mo agoMany global indexes are also traded in USD. Ironically last year has been good for those who held EUR based or CHF based indexes.
- baxtr 9mo agoStill not helpful if you need to pay your bills in EUR?
- Rastonbury 9mo agoThere is no 'cure' per se as a non-US investor currency risk is just something to accept (or swap return for a hedge but then it ends up being a wash mostly), for example if you invest in a World equities ETF, it's a bit pointless to be hedging exposure to all the currencies. Even if you decide to slant away from the US, it's likely a majority of non-US large caps have USD exposures. It's more a psychological thing, you see absolute USD return and think you could've made that but there's not the actual return, your actual return is post conversion, if you'd have hedged you wouldn't have that abosulte return either, so you've never had it. Additionally, if you're like most people and investing regularly or DCA-ing from now on you can buy at lower USD
- ambicapter 9mo agoIs absolute USD return being lower than “actual return” (not sure what that is measured in) an issue if you stay in USD your whole life?
- baxtr 9mo agoNo but your USD return gap should in theory be eaten away by inflation.
- Rastonbury 9mo agoActual return is for non-US investors having to convert back to say Euros for retirement, after having the dollar weaken, you get less Euros for example
- miroljub 9mo agoThat logic is flawed. The end value and ROI for S&P500 is the same regardless of the currency used to display it. It's the same as complaining that the temperature increased more in Fahrenheit than in Celsius. EDIT: The total value is the same regardless of the fluctuations of currencies used to represent the value. Those are two independent issues. Currencies fluctuate even if you keep them in checking accounts without investing them. And yes, if you measure distance in feet, your son will go every year further away than you because his feet keep growing, while yours stay the same.
- dranudin 9mo agoThe roi is unfortunately not the same if you earn your money in euros and need to pay your taxes in euros. At one point one has to do a forex trade and that will be a loss for the euro investor
- rwmj 9mo agoOnly if you convert it at a loss and are unable to wait for USD to recover. If (and it is, admittedly, a big assumption) we assume that USD and EUR are broadly stable currencies over the long term, then short term changes in the ratio don't matter for long term investors. You're buying a share of productive capacity, the currency it is listed in doesn't matter.
- compsciphd 9mo agoyes, but could one also argue that due to currency weakening, the S&P's growth can simply be due to the weakened currency? If I can say something has an "absolute" value of X, but I denominate it in USD, which is normally 1:1 to X, then it's value in USD in X. but if USD drops to being worth half an X, but its absolute value hasn't changed, it will now appear to be worth 2X in USD. so why can't one argue, if the dollar weakened by 15%, but everything else being equal, one would expect dollar denominated stocks to appreciate (in dollars) by the same amount? And if the dollar would strengthen, we would expect the stock price to depreciate?
- swexbe 9mo ago> indicies that usually do not perform that well MSCI EM has outperformed MSCI US since it's inception in 2001 if you look at total return.
- epolanski 9mo agoSmall caps and emerging markets in the long run should outpace advanced high cap markets as they have more room to grow. There's also some other interesting aspects of emerging markets specifically: they never went more than 4.5 years before recovering from a crash to ath, whereas it took the SP500 12 years and EU 600 index 14 to recover from the 2000 one.
- Retric 9mo agoGoogle etc may be a US based company, but they can leverage emerging markets just fine. There’s a stronger argument to be made for small caps, but stock buybacks allow any company’s stock to effectively experience exponential growth even with flat earnings. IE there’s little long term difference between buying back 2% a stock every year and ~2% actual growth every year assuming you never hold the majority of shares. (as in 1/0.98 ~= 1.02)
- epolanski 9mo ago> Google etc may be a US based company, but they can leverage emerging markets just fine. Not sure what are you trying to say.
- wu1064442747 9mo ago[flagged]