Currency risk and ETF

[Jd.l]

Hi,

I now have one topic in my head that keeps my mind busy and I cannot find a good answer to my concerns. Currency risk and ETF.

Like being located in Switzerland, earning your money in CHF, but then exchanging CHF to USD and buying VT or VOO etc. I am worried about the potential impact of the USDCHF fluctuation and final returns of my ETF. As at the end of the day, if I stay in Switzerland or move to some country in the Eurozone, I will need to sell my USD against CHF or EUR. USDCHF went 11.24% down in 5years. Some change for exchanging USD back to CHF.

My initial thought was to have 2 more ETFs with mostly European / EUR and Swiss / CHF exposure, IMEU and CHSPI, but when I look at returns, it just feels like a lost opportunity against VT or better ETFs. Even if I want to keep like max. 20% of my investment in IMEU/CHSPI, the returns make me think about some other options. Then again the exchange rate and the tendency of CHF to strengthen its position.

So my second thought was to buy VUSD or VWRD that is a USD ETF located in Ireland, but both are traded in EUR and CHF. Creating some reserve in these 2 currencies and capturing the FX more broadly over time rather then to be just exposed to the USDCHF and taking any loss because the exchange rate at that time is at its lows.

So basically I am confused haha and trying to understand this topic better.

Maybe some of you have the same thoughts or better understanding of this topic.

Thank you!

 

[Max]

You might be interested in hedged ETFs to reduce your concerns. They will probably bring a psychological effect, but financial profit is not really guaranteed, see Baptiste's Should you use currency hedging in your portfolio?

 

[Baptiste Wicht]

So my second thought was to buy VUSD or VWRD that is a USD ETF located in Ireland, but both are traded in EUR and CHF. Creating some reserve in these 2 currencies and capturing the FX more broadly over time rather then to be just exposed to the USDCHF and taking any loss because the exchange rate at that time is at its lows.

The trading currency will not protect you in any way. It's being converted in real time based on stock price and exchange rate, sometimes plus a fee.

As pointed out by @Max, one tool would be to opt for currency hedging. Another tool is to increase your position in CHF, such as cash or CH real estate. Or even Swiss bonds. The problem with Swiss stocks is that they provide limited protection because some of these international companies may also suffer from a strong Swiss franc.

What really matters is that you are confident in your portfolio and that it lets you sleep at night. And that balance is not the same for everybody.

 

[Jd.l]

Thank you, Max and Baptiste. I think I just have a fear from overthinking this topic. A bit of worst case scenario prevention. But with some calculations I did, it feels less worrying at the end of the day

 

[MIG]

I have the same problem as you Jd.I, i m thinking that at some point in the future I will return to my home country (European country).
Right now I'm stuck with my investment because I don't know if the currency or product is better(new york or european exchange) for me.
In Switzerland we can invest in products such as voo, vti (dollar currency) etc., but if you are operating in a European country you cannot, you need to invest vusa etc. (euro currency)
This means that if I invest in products like voo at that time that i operate in my European country, it will be possible make only withdrawals, right?
I think that investing in dollar is more secure for my investement, cheaper, i will have more interest rates if all my investing are in dollar, but i m also concern about the taxes on my home country if i buy in american exchange .On top of that i m concern about currency flutuention.

OMG Im so confuse, Maybe we can talk about it with each other...

 

[Baptiste Wicht]

If you don't know whether you will return or not, it's indeed more complicated. I would say it can of depend on how probably it is.

For US products, the currency does not matter much because they will be in USD anyway, so you will have currency risks whether you stay or not in Switzerland. That's what I would stick to.
I have you have a home bias ETF, this gets more complicated because it should be in CHF if you are going to stay but in EUR if you will leave. You could change later, but then you have the CHF/EUR risk.
And if you use non-US ETFs, most of the world ETFs will still hold USD even though they may be traded in EUR.
And if you will hedge, you should only hedge in your destination currency.

IF you don't know, you can probably stick to the idea of investing fro Switzerland. And if you think it's more probably you will return, then it could make sense to invest for EUR.