Currency Diversification

You can also make currency diversification indirectly.

Now we see it.

Let’s start with what currency diversification is and why it is useful.

Forex is the largest global financial market. Central Banks use it to regulate the value of their currencies. The goal is to keep exchange rates fixed for strong economies in the long run. If needed, currencies can be inflated to encourage exports (excellent for transforming economies) or strengthen them if you are an importing economy (see the $).

Currency Diversification

I didn’t tell you about Forex to invest in it, but to make you understand the importance of currencies in the economy.
Now look at the image below and you can see in the blue line how many $ are needed for one €. while the red line is the CHF useful for a $.

Since 2000, the Swiss have become virtually twice as rich as Americans, serving nearly half francs for a dollar. Europeans had the same gain up until 2008, but are now realigning with the dollar.

When investing, it would be helpful to diversify, but not too much. Do you remember?

I recommend not putting all your money in one currency, especially if it’s the one you use for a living. Possibly it would be useful to use another hard currency from a distant country. ($/€ or $/CHF should be fine)

Let’s see how to defend yourself through currency diversification through ETFs.
Buying a €-denominated S&P 500 ETF does not protect you from the collapse of the dollar, because the underlying assets of the ETF are in dollars. (they are bought on the NYSE in dollars).

Hedged ETFs will help protect yourself against currency exchange against a currency.
Cons: they have a higher TER and a lower yield in general, because there are protection tools inside them.

Do they help you feel comfortable?
Then study them and use them, sanity is more important than an extra 1% a year.

Indirect currency diversification

Buying a global index helps you, despite the 50-70% US exposure.
In addition, US multinationals make profits all over the world. Consequently, if the dollar loses value against the euro for example, companies will still have an increase in their turnover.
For example, about 30% of the S&P 500’s revenue comes from Europe.

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