Sam ORGILL of ProACT Partnership goes with the flow - Living Abroad With Currency Ups and Downs
If you must change currency today you could lose out. So take a long term view. If you are an Expat and have assets in different currencies then take a balanced view.
I will use GBP and EURO to compare on this article.
BALANCED CURRENCY RISK
Most expats living and working abroad have overseas property, savings, pensions and maybe business or loans.
What is the total value? Of Income and of Capital ? What proportion is in the home currency and foreign currency?
If you Split the assets 50:50 between currencies, you have no currency risk from exchange rate changes.
The rise and fall of each half of assets GBP : EURO balance out and net worth is maintained.
SPENDING MONEY v ASSETS
Your balance can fall down if all your spending money / cash is in GBP and all your overseas property assets are in EURO. You can be spending and exchanging the wrong currency at the wrong time - eroding your net worth.
This can happen if an Expat ploughs all her cash into overseas property as a fixed asset, in EURO, only then to have to live in EUROland on income salary or pension paid in GBP.
Expats investing in different currencies should consider splitting Income / cash and savings 50:50 between currencies GBP : EURO, and then also splitting long term capital assets (property, investment, business) between currencies 50:50 GBP : EURO.
In other words for low currency risk expats could: invest no more than 25% of net worth in a second currency EURO property and no more then 25% of cash /income in a second currency.
If all pension income is GBP then a lump sum investment should be made in EURO as a source of EURO income if required during swings in currency.
Savings Tip : keep 50:50 GBP : EURO balances of INCOME cash savings and ASSETS in overseas property, business or investment.
When you do have to exchange currency of cash income it is best to do so regularly. In this way you will get an average exchange rate. Pension providers or Currency Exchange brokers offer this service.
Stay Calm With All the Changes
Forget the headlines. Exchange rates go up and down but on average they don't change much.
Do not let the headlines scare you. A headline exchange rate GBP : EURO of 1.20 exchange rate is in line with exchange rates between 2012 / 13 / 14.
This rate is better than 2009 / 10 / 11.
It is lower than 2015, a rate in line with the 1999 - 2016 average GBP : EURO exchange rate 1.38 v 1.37
Changing Times For Everyone
Potentially before EU Brexit GBP was heading back to this historical balance GBP : EURO price.
Now uncertainty in the UK requires lower exchange rates and a weaker currency to stimulate the internal economy.
Expats following a low currency risk strategy of splitting income and assets between home and overseas currency GBP : EURO ensures the best times in the sun.
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