(how to mitigate currency risk)
Imagine packing up your life, moving to the beautiful South of France, and wearing a heavy, waterproof British winter coat in the middle of July. When people ask why you are sweating, you reply: "Well, this coat always kept me warm back in the UK, so I'm sticking with it."
It sounds completely ridiculous. But as a financial planner, I see expats make the exact financial equivalent of this mistake every single day.
Behavioural economists call it "home bias." It is the natural human instinct to invest heavily in what feels familiar and close to home.
For British expats, it usually means clinging onto a string of UK buy-to-let properties or exclusively buying UK shares. For Americans, it is often a steadfast refusal to invest in anything other than the US stock market. We cross borders in search of a new adventure and a better lifestyle, but we leave our life savings sitting right where they started.
It feels safe. But when you live abroad, investing like you still live in your home country could very well be a significant risk.
Here is the problem: your life is no longer priced in your old currency.
If you have retired to Europe, your daily expenses (your property taxes, your electricity bill, your weekly shop, and your morning croissant) are all priced in euros.
If all of your wealth is tied up in sterling or dollars, you are entirely at the mercy of the foreign exchange markets. If the Pound suddenly drops by 10% against the euro, your European lifestyle just got 10% more expensive overnight. You aren't just taking on investment risk anymore; you have accidentally turned your retirement into a high-stakes currency gamble.
The legendary investor Sir John Templeton summed it up perfectly when he said: "Diversification is a safety factor that is essential because we should be humble enough to admit we can be wrong."
You cannot predict what the UK property market will do next year. You cannot guarantee that the US stock market will always dominate. You cannot know exactly what the exchange rate between your currency and the South African rand will be in 2035.
But here is the brilliant part: you do not need to.
By building a globally diversified portfolio, you stop relying on a single country's economy to fund your future. You spread the currency risk, you capture growth wherever it happens, and you smooth out the bumps along the way.
Your portfolio needs to reflect the life you are actually living today, not the life you left behind 15 years ago. If your investments are still wearing a heavy winter coat while you are sitting in the Mediterranean sun, it might be time for a wardrobe change.
If you’d like to review the nitty-gritty of your portfolio and get your cross-border chickens in a row, let's have a chat.