Unit 2 · Level 2 · Currencies & FX
FX risk in YOUR portfolio
Buy a US index fund with euros and you own two bets, whether you meant to or not: the S&P 500 AND the dollar. If Wall Street rises 10% but the dollar drops 10% against the euro, your euro-measured gain is roughly zero. Most long-term investors never notice this, until the year it decides their entire return.
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What you get asked
You're a euro investor holding an S&P 500 ETF. Your real return depends on:
The fund's assets live in dollars, but you eat, rent and retire in euros. Both legs count. Standard (unhedged) ETFs pass the currency move straight through to you.
You invest €10,000 in a US fund. In dollars it gains 20%, but the dollar falls 10% against the euro. Roughly what is your holding worth in euros?
€10,000 × 1.20 × 0.90 = €10,800. The 20% headline gain shrinks to 8% in your currency. The dollar quietly took the rest.
In 2022 the S&P 500 fell about 19% in dollars, yet euro investors lost noticeably less. Why?
The dollar gained roughly 6% on the euro in 2022, cushioning the fall for euro holders. FX risk cuts both ways: some years it wounds you, some years it's free armour.
Match each fund choice to its currency consequence
There's no free option: hedging costs a little every year, staying home concentrates you, going global dilutes but never deletes FX. Pick consciously rather than by accident.
For a euro investor holding global stocks for DECADES, currency swings are usually:
Over decades, major-currency swings mostly cancel out, while the businesses you own keep compounding. Know the risk exists, diversify across it, then let time do the hedging for free. 🐜
The rest of this unit
Why the euro in your pocket rises and falls against the rest of the world.