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Ok. Got itWhen investing internationally, your investment growth is affected by the performance of the currency you are exposed to.
Foreign exchange rates: what to keep in mind when investing
Investing internationally is an excellent way to diversify your investment portfolio and improve your long-term returns. However, to make your international investments work for you and grow your money, it is important to be aware of the risks, so that you can manage these. One of these risks is fluctuations in the foreign currency your investments are exposed to.
Currency fluctuations are quite normal for most major economies, which is why it is important to consider the impact of these on your international investments. If you invest in an international company that shows good growth, you can still lose out on profit due to currency fluctuations. If you invest directly in foreign currency, the impact will be even more significant.
Different ways you are exposed to foreign currency when investing internationally
When investing internationally, you can be exposed to foreign currency either directly or indirectly:
In both these instances, it is important to consider the foreign currency your investments will be exposed to and to keep track of how the currency fluctuates.
When investing directly in the forex market, currency fluctuations will play a key role when you buy and sell forex. When you invest in foreign companies, the impact of currency fluctuations is not the only factor affecting your outcomes – firstly, you are betting on the growth of the company. If the company does well and the currency remains strong, you will optimise your returns. In addition, the timing of when you will convert your returns to rand will also be informed by exchange rate movements.
Factors that influence foreign currency exchange rates
Strong and stable currencies that don't fluctuate excessively offer the best chances of growing your investment returns over time.
Expert advice can help you make the most of international opportunities
While investing internationally can go a long way in helping you grow your money, it can be daunting to know where and how to invest. A wealth manager can help you make an informed decision about whether investing directly or indirectly is more appropriate for you, and to understand the role that factors like foreign exchange rates play in your portfolio.
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Disclaimer |
This information is for general information purposes only and is not legal advice. |