Is foreign Investment worth it now?

Good day all,

Given that the GBP has literarilly collapse against the USD in particular this week from wroughly $1.30 to (levels I have not known so far in my life time) $1.15. Is it worth investing in highly discounted solid US companies now or just wait and hope the GBP recovers in time?

Thanks and I look forward to your contribution

I try not to worry much about exchange rate. I’ve seem my portfolio vary by about 1% either way because of it. Granted it’s much higher now, but volatility is crazy in general. I’ll still buy US companies.
Having said that, I know there are many more active investors that do care a great deal about exchange rate. To the point where they would like a seperate account for $, £ etc…

My portfolio:

1 Like

I don’t worry too much about exchange rates. What else would you buy instead of US companies that did not also have some exchange rate volatility? You hope someday to sell these shares and use the proceeds to buy things that you desire in life: food, holidays, technology, etc. These products are also subject to exchange rate variation. Today 3.635 shares of Apple can be sold to buy an iPhone 11 costing £779. That ratio is likely to move in your favour at whatever price you buy Apple shares.

2 Likes

is this portofolio calculation made inside trading212? or an external plugin

Not free though.
Great alternative:
Edit: Does not show currency gain/loss though

I don’t think that the dollar will stay that low for long, I imagine it will be back up to 1.2 USD/GBP before long.

Thanks for the feed back guys and I appreciate it.

When I started out investing a few months ago. I bought some Cisco at around $47 rate was roughly 1.226 at the time. Cisco then went up in value to about $49 or so but I remain in the red because the rate as also increased.

Here is a scenario;

Let’s assume I bought Goog at $1137 (rate- $1.15)= £988.7

Should Goog return to $1500
(rate remained the same at $1.15)= £1304.35 return
(Rate increases to $1.30) = £1153.85

A difference of £150 is a lot of money not be be concerned about

If the purpose of investing is to make the most of the opportunity the stock market offers why would anyone not pay attention to the exchange rates whilst there’re significant movement. Or is there something i’m missing here?

2 Likes

No you are spot on. I choose not to worry about it. Ignorance is bliss. Same can be said of right now lol.

what you are missing is that the behaviour you set in the example is not investor behaviour, but rather trader behaviour. naturally it is best to buy when the price is low and exchange rate is high, and best to sell when the price is high and the exchange rate low but these are the extremes which rarely if ever occur in reality.

The typical investor approach is not to put too much weight on a single transaction. since the plan is to hold the shares and not actually sell them over time, you will find each addition to a position will have its own FX rate and share price. after 2+ years in a stock, your average FX rate will see little fluctuation from short-term erratic behaviour. perhaps you don’t get as much now as you could have in the past or future additions, but now is when you have the money.

you could hold off and instead better spend the money in a local company so as to avoid a bad FX rate and make a deposit to a foreign company when and if the rates turn back in your favour a little on a later date which you cant guarantee. at least today its 1.15 tomorrow it could go to 1.1 and never again reach 1.15 for the next 50 years (extreme but possible in theory) after all, the FX rate used to sit comfortably above 1.5, and for a while had gone as far as 2

a calculation you forgot to do is “what if the Rate drops to 1 or 1.1” once you have an open position in a foreign currency, a drop in fx rate could see you making a tidy profit even if you sell the shares for the same or less than you bought.

I have positions in O and PEP. I will not be selling these shares in the next 10 years, over those 10 years I can expect the FX rate to change, some days they will be a better deal than others, and instead of averaging monthly I could opt to only buy on the few days where I see favourable prices, but ultimately I will not sell these shares. if the FX rate increases, my next purchase will get me more for my money, if the FX rate decreases my position becomes worth more in my local currency. as far as I am concerned, that’s a win-win in my books.

final note: buying foreign shares is a calculation of FX rate x share price. when the FX rate sees a violent adjustment like what is happening now, you will often see company share prices have also been affected by the news to a varying degree according to sector and industry impact. so even though I cant get as many for my £ right now, I can buy shares for less than I can normally. this means the value of the share evens out and I need only compare whether I am ultimately paying more or less than normal for a single share in my local currency, not in the shares native currency.

2 Likes

Thanks for a very detailed feedback, It does make sense. I am currently investing a bit more in UK stocks as they have been lagging behind in my portfolio. However, it will be difficult not to take advatage of the current prices for the US stock which I now intend to slowly and steadilly allocate funds to.

That’s fine. Do what you can when you can. At least the FX rate has been seen bouncing up to nearly 1.2 and sits at about 1.17-1.18 right now. Perhaps a slightly more tolerable number will be seen in the next few days again?