Maybe other Europeans here have the same question(s): I've been investing a bit in the Vanguard VTI fund which is very popular in this community as a long term choice. However, in Europe we of course have to pay with euro's and currently the exchange rate is eating away my profit. What to do? Hoping (gambling...) that the euro will go still further down and then selling my dollar investments? Or just counting on the long-term dollar-cost averaging? Or trying to buy dollars in cash (when rates are good) and investing those directly?
I'm sorry for sounding like a real novice in investing matters (which I really am... )
A side question to this: I would also be interested if anybody could point me to ETF's similar to the Vanguard VTI but expressed in euro's.
thanks, Jan
As a European: investing in dollars or euro?
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JanFromBelgium
- Posts: 12
- Joined: Thu Mar 26, 2015 8:55 am
Re: As a European: investing in dollars or euro?
Assumptions:
Your home currency is the euro
You can hold for about 10 years before needing to cash in (opportunistic trades are OK)
It is important to avoid a situation where you buy dollar funds when the dollar is high and sell them when the dollar is lower. If you buy when the euro is at $1.10 and have to sell at $1.30, you will have lost 15% on currency changes alone.
At this moment the euro is the better currency for long term investment by Europeans because it is being held down by fear of government default on debt and by quantitative easing. These are both temporary problems which will dominate currency trading for 2 to 5 years. In 10 years there will be different problems and exchange rates will be different.
A low euro helps businesses with earnings outside the eurozone. You could look for funds that focus on the exporting nations, especially D and NL. Or you could focus in on individual companies. But be ready to sell again, because if the euro rises, exporter share prices may take a drop.
In order to diversify your portfolio, you could also research companies from below the mountains (Alps and Pyrenees) which might also benefit from exports outside the eurozone. Higer risk, but the share prices may be artificially low at the moment.
One problem with investing in Europe is the level of government regulation on sectors, for example changes in the German energy policy damaged investments in electric utilities. So you may wish to focus on specific sectors where you feel it is safer to invest.
You could also invest a modest amount of your portfolio in the US and UK for diversification.
Your home currency is the euro
You can hold for about 10 years before needing to cash in (opportunistic trades are OK)
It is important to avoid a situation where you buy dollar funds when the dollar is high and sell them when the dollar is lower. If you buy when the euro is at $1.10 and have to sell at $1.30, you will have lost 15% on currency changes alone.
At this moment the euro is the better currency for long term investment by Europeans because it is being held down by fear of government default on debt and by quantitative easing. These are both temporary problems which will dominate currency trading for 2 to 5 years. In 10 years there will be different problems and exchange rates will be different.
A low euro helps businesses with earnings outside the eurozone. You could look for funds that focus on the exporting nations, especially D and NL. Or you could focus in on individual companies. But be ready to sell again, because if the euro rises, exporter share prices may take a drop.
In order to diversify your portfolio, you could also research companies from below the mountains (Alps and Pyrenees) which might also benefit from exports outside the eurozone. Higer risk, but the share prices may be artificially low at the moment.
One problem with investing in Europe is the level of government regulation on sectors, for example changes in the German energy policy damaged investments in electric utilities. So you may wish to focus on specific sectors where you feel it is safer to invest.
You could also invest a modest amount of your portfolio in the US and UK for diversification.
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Noided
Re: As a European: investing in dollars or euro?
Correct me if I am wrong but one of the good things about investing in the US (and in dollars) is that the US economy is so diversified that even if you are holding dollar assets, the underlying assets are in many different currencies. So in part you are diversifying for currency risk.
Check justetf.com for ETFs in europe. Some european ETFs have the advantage of capitalazing dividends, so you are saving on taxes on those.
Check justetf.com for ETFs in europe. Some european ETFs have the advantage of capitalazing dividends, so you are saving on taxes on those.
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The Old Man
- Posts: 530
- Joined: Sat Jun 30, 2012 5:55 pm
Re: As a European: investing in dollars or euro?
My stock investments are split evenly between the USA and the rest of the world. My investments are denominated in US Dollars; however, keep in mind the underlying stocks conduct business in whatever currency is appropriate. Through my international funds I hold German stocks which use euros, but at the end of the day my funds price the investment in dollars based on the euro-dollar exchange rate. Currency fluctuations are an accepted risk in international investments (assuming no forex hedging). As long as you have an appropriate diversified portfolio then I wouldn't worry about it.
On reading your question closer it appears as if you have other concerns beyond currency fluctuations.
"Or trying to buy dollars in cash (when rates are good) and investing those directly?"
This approach should make no difference. However, you should investigate to make sure you are getting a good FOREX rate. Banks generally provide poor rates. Currency transfer services are generally pretty good. If you are directly investing foreign currencies into Vanguard and having them perform the foreign currency exchange, then you are likely getting a poor rate because their underlying bank would be performing this service.
On reading your question closer it appears as if you have other concerns beyond currency fluctuations.
"Or trying to buy dollars in cash (when rates are good) and investing those directly?"
This approach should make no difference. However, you should investigate to make sure you are getting a good FOREX rate. Banks generally provide poor rates. Currency transfer services are generally pretty good. If you are directly investing foreign currencies into Vanguard and having them perform the foreign currency exchange, then you are likely getting a poor rate because their underlying bank would be performing this service.
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JanFromBelgium
- Posts: 12
- Joined: Thu Mar 26, 2015 8:55 am
Re: As a European: investing in dollars or euro?
Thanks to everybody for the useful comments! Some remarks:
to Sky: your assumptions are indeed close my situation. Do you think it's wise to continue buying US $ denominated ETF's, and hold them until
a) the exchange rate to euro is favorable to sell them, or
b) sell them when needed (e.g. bear market coming up) and hold the cash on a US $ account until the exchange rate is favourable to euro?
to General Snoopy: could you explain what 'currency transfer services' are, please? I already said I'm a real novice...
to Noided: exactly! That is the main reason why I like these US Economy ETF's. Thanks a lot for pointing me to justetf.com: great source!
and to Jean: yes, I had been looking at the Swiss index too. Maybe I'll have a go on that one soon.
to Sky: your assumptions are indeed close my situation. Do you think it's wise to continue buying US $ denominated ETF's, and hold them until
a) the exchange rate to euro is favorable to sell them, or
b) sell them when needed (e.g. bear market coming up) and hold the cash on a US $ account until the exchange rate is favourable to euro?
to General Snoopy: could you explain what 'currency transfer services' are, please? I already said I'm a real novice...
to Noided: exactly! That is the main reason why I like these US Economy ETF's. Thanks a lot for pointing me to justetf.com: great source!
and to Jean: yes, I had been looking at the Swiss index too. Maybe I'll have a go on that one soon.
Re: As a European: investing in dollars or euro?
If you want exposure towards the world index it makes no difference what currency the ETF is denominated in (as long as no currency hedging is used / wanted).
So go ahead and buy the ETF wit lowest fees.
So go ahead and buy the ETF wit lowest fees.
Re: As a European: investing in dollars or euro?
I wish I could be more clear with advice, but I don't know what is going to happen any more than anyone else.
Personally, I would hold on to my cash to see what happens after the next Greek debt payment in a week or two. It will probably be just more of the same slow train wreck, but I have heard that this time they will not be able to make the payment (for the first time). If Greece goes into default and receivership as in the Detroit model(bankruptcy), in about 2 years the euro will be stronger. Until then, a weak euro favors exporters from the eurozone. If the EU bails out Greece, that would likely cause further devaluation of the euro (good for exporters as well).
While I never like to bet against the US stock market, the dollar is high and the indexes are high. At the moment, I feel that for someone holding euros, euro denominated funds and equities based north of the mountains are the best investment. In particular, dividend equities from Germany.
Personally, I would hold on to my cash to see what happens after the next Greek debt payment in a week or two. It will probably be just more of the same slow train wreck, but I have heard that this time they will not be able to make the payment (for the first time). If Greece goes into default and receivership as in the Detroit model(bankruptcy), in about 2 years the euro will be stronger. Until then, a weak euro favors exporters from the eurozone. If the EU bails out Greece, that would likely cause further devaluation of the euro (good for exporters as well).
While I never like to bet against the US stock market, the dollar is high and the indexes are high. At the moment, I feel that for someone holding euros, euro denominated funds and equities based north of the mountains are the best investment. In particular, dividend equities from Germany.
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The Old Man
- Posts: 530
- Joined: Sat Jun 30, 2012 5:55 pm
Re: As a European: investing in dollars or euro?
http://www.usforex.com/customer-rates
US Forex is a business that provides currency transfer services. I like them because they are transparent about their rates. The above URL has their customer rates. Rather than using a bank wire transfer you would use them to transfer the funds to your account. Note, I do not have any personal experience with this company.
US Forex is a business that provides currency transfer services. I like them because they are transparent about their rates. The above URL has their customer rates. Rather than using a bank wire transfer you would use them to transfer the funds to your account. Note, I do not have any personal experience with this company.
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Noided
Re: As a European: investing in dollars or euro?
Check out TransferWise service too.
Is there a topic for european investors here in the forum?
Is there a topic for european investors here in the forum?
Re: As a European: investing in dollars or euro?
I am currently putting together a portfolio, I am planning to mostly invest in european stocks and mostly Dutch stocks (i.e. available on the Dutch stock exchange) Most of these companies , think Shell, Unilever , ASML are also exposed to currency risk , since they conduct their business globally.
If the company's are well worth it I don't think it matters a lot for the end result in which currency you invest. You might get a bit less dividend/profits in your currency one year and a bit more the next.
If it's a lot of money you can hedge against that risk apparently , but I have no idea how.
If the company's are well worth it I don't think it matters a lot for the end result in which currency you invest. You might get a bit less dividend/profits in your currency one year and a bit more the next.
If it's a lot of money you can hedge against that risk apparently , but I have no idea how.
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Noided
Re: As a European: investing in dollars or euro?
You can do it by buying hedged assets. For example if you wanted to buy an S&P500 Index ETF, there are some that are hedged against currency risk. This translates into a higher Expense Ratio of course.
I am thinking of starting investing in 2016 but I still have to read a lot about this issue, I am scared of losing a big chunk of my money by investing in dollars. There are euro denominated ETFs though.
I am thinking of starting investing in 2016 but I still have to read a lot about this issue, I am scared of losing a big chunk of my money by investing in dollars. There are euro denominated ETFs though.
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Noided
Re: As a European: investing in dollars or euro?
Sorry for doing a double post, but I don't want to open another thread just for this question.
I have been thinking about how I will create my retirement income. Since I currently live in Portugal I guess I have to plan as if I stayed here forever. Investors here are taxed both in the country where the funds are, and in the home country (US and Portugal for example). There is some tax agreement but even with that we are looking at a combined tax rate of almost 40%!!!
So... my plan is to invest in ETFs that don't distribute dividends (I save in dividend taxes) until I reach my FI number. Then I would only sell assets if my investments are above that FI number.
If I were in the US I would maybe try some dividend investing, but in my case I see no better alternative to be in the stock market (I could invest in RE for example). Thoughts?
I have been thinking about how I will create my retirement income. Since I currently live in Portugal I guess I have to plan as if I stayed here forever. Investors here are taxed both in the country where the funds are, and in the home country (US and Portugal for example). There is some tax agreement but even with that we are looking at a combined tax rate of almost 40%!!!
So... my plan is to invest in ETFs that don't distribute dividends (I save in dividend taxes) until I reach my FI number. Then I would only sell assets if my investments are above that FI number.
If I were in the US I would maybe try some dividend investing, but in my case I see no better alternative to be in the stock market (I could invest in RE for example). Thoughts?