When an investor places part of their money in a foreign investment, the exchange rate can affect the return. In this article, “Investing Abroad: What the Exchange Rate Doesn't Tell You,” we will examine the impact of the exchange rate on an investor.
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⚠️ This article is not investment advice. Investing involves risks of losing money. The reader should do further research before investing.
The shareholder and exchange rate diversification
When you are an investor, you seek to invest with good returns over the long term, in order to make your money grow.
Note that with our fortune, it is possible to invest or have investments abroad.
Therefore, it is possible that we have investments with several currencies.
Indeed, nowadays it is very easy to invest, for example, in an ETF that replicates an investment in a foreign country with a foreign currency.
Currency diversification is often recommended in our financial assets. But why?
Why hold multiple currencies?
👉 In reality, if the investor has investments in several foreign currencies, his money is less subject to the depreciation of one currency.
What is currency depreciation?
Currencies fluctuate in value every day. For example, the Euro, the Yen, or the Canadian Dollar can lose or gain value in one day.
As a result, the currency of our country of residence tends to gain or lose value against other currencies every day! This is called Forex.
The majority of readers of this blog are Swiss or Europeans who earn and spend their money in EUR or CHF. However, they have investments mainly in the USA using USD.
Here is a table with the fluctuation of the value of the 3 currencies, between 2015 and 2024:
| 1.1.2015 | 12/31/2024 | Loss or gain in value (approximate) |
|---|---|---|
| CHF -> USD / 1 CHF = 0.99 USD | 1 CHF = 1.10 USD | The CHF gained 11% against the USD |
| CHF -> EUR / 1 CHF = 0.83 EUR | 1 CHF = 0.64 EUR | The CHF gained 25% against the EUR |
| USD -> EUR / 1 USD = 0.82 EUR | 1 USD = 0.96 EUR | USD and EUR stabilized in value, but EUR devalued slightly |
Here is a comparative graph of the 3 currencies according to the zonebourse site:
- Black = CHF -> EUR
- Blue = CHF -> USD
- Red = EUR -> USD
We conclude that:
- From 2015 to 2024, the CHF gained approximately 10% against the US dollar.
- From 2015 to 2024, the CHF gained approximately 25% against the EUR.
- From 2015 to 2024, the EUR lost approximately 15% of value against the US Dollar.
In summary, between the 3 currencies, we can conclude that the EUR is clearly the currency that has lost the most value, while the CHF is the one that has gained the most value!
Why are there shareholders with multiple currencies?
👉 In order to stabilize the average value of their stock portfolio!
Example between 2 French shareholders
For example, here are two shareholders, Paul and Jaquier. Note that these are two shareholders who reside in France.
Jaquier invests 100 % of his money in a CAC 40 ETF that tracks the 40 largest French stocks, while Jaquier mixes his investments between a CAC 40 ETF and a global ETF (it's a global ETF with over 9,000 stocks worldwide).
Here is the breakdown of Jaquier ETFs:
- 25% = National investment ETF of French equities (CAC40)
- 75% = Global Investment ETF (VT)
Here is the breakdown of each shareholder's investment (approximate values!):
| Paul | Jackfruit | |
|---|---|---|
| Investment in France | 100% (ETF Cac40) | 27% (ETF Cac40+ ETF VT) |
| Investment in the USA | 0% | 55% (ETF VT) |
| Investment in Europe outside France | 0% | 12% (ETF VT) |
| Investment outside Europe and outside the USA | 0% | 6% (ETF VT) |
If we analyze the currencies invested, here is approximately the percentage of each currency:
| Paul | Jackfruit | |
|---|---|---|
| Investment in EUR | 100% (ETF Cac40) | 35% (ETF Cac40 + ETF VT) |
| Investment in USD | 0% | 55% (ETF VT) |
| Investment in other currencies (e.g. CHF, British Pound, Brazilian Real) | 0% | 10% (ETF VT) |
Regarding performance, here is the cumulative performance of the 2 ETFs:
- ETF CAC 40 Amundi = + 125%
- ETF VT Vanguard = + 145%
We conclude that Jaquier's stock portfolio is much more varied, profitable and diversified than Paul's.
Moreover, if we compare between 2015 and 2024, Jaquier won in 2 aspects compared to Paul:
- The VT ETF was more profitable than a Cac40 ETF
- The VT ETF is less subject to the EUR (which has lost a lot of value)
👉 As a result, Paul's stock portfolio is heavily reliant on France and the EUR, while Jaquier's portfolio is more varied and diversified. Moreover, Jaquier achieved a better return during the compared period. !
Example between 2 Swiss shareholders
If you reside in Switzerland, you will want to analyze 2 Swiss shareholders.
Here is an example with Luca, who invested 100% of his money in a Swiss stock ETF, and Olive, who has a stock portfolio of:
- 75% in a global ETF (VT)
- 25% in a Swiss equity ETF (CHSPI):
Here is the breakdown of each shareholder's investment (approximate values!):
| Luca | Olive | |
|---|---|---|
| Investment in Switzerland | 100% (ETF SPI) | 27% (ETF SPI + ETF VT) |
| Investment in the USA | 0% | 55% (ETF VT) |
| Investment in Europe outside Switzerland | 0% | 12% (ETF VT) |
| Investment outside Europe and outside the USA | 0% | 6% (ETF VT) |
If we analyze the currencies invested, here is approximately the percentage of each currency:
| Luca | Olive | |
|---|---|---|
| Investment in CHF | 100% (ETF SPI) | 27% (ETF SPI + ETF VT) |
| Investment in USD | 0% | 55% (ETF VT) |
| Investment in other currencies (e.g. EUR, British Pound, Brazilian Real) | 0% | 11% (ETF VT) |
Regarding performance, here is the cumulative performance of the 2 ETFs:
- iShares SPI ETF = + 75%
- ETF VT Vanguard = + 145%
👉 Therefore, we conclude that holding a stock portfolio with multiple currencies and multiple investment countries allows for stabilization of the portfolio's value and better diversification. Moreover, the performance is historically better!
US stock market VS French stock market VS Swiss stock market
The majority of shareholders have a predominantly US stock portfolio.
This is normal because the majority of profitable stocks are US.
For example, if I compare the performance of the 4 most reputable stock markets for the readers of this blog, the US stock market is by far the most interesting:
| Stock market | Example of ETF | Yield August 2015 to August 2025 |
|---|---|---|
| USA (SP500) | Vanguard Voo | + 289% |
| French (Cac40) | Xtrackers Cac40 | + 120% |
| Switzerland (SMI20) | iShares SMI CHSPI | +89% |
| ETF Global | Vanguard VT | + 145% |
Here is the order by yield:
- SP500 = 289% in dollars
- ETF Global = 145% in dollars
- Xtrackers 40 (Cac40) = 120% in Euros
- SMI = 89% in CHF
👉 We conclude that the US stock market is much more profitable than the French stock market, the Swiss stock market or the global stock market!
Furthermore, it should be noted that the global stock market has been more profitable than the French or Swiss stock markets.
I think you understand better why on social networks, we often talk about the profitability of the American (US) stock market 🤭
FIRE in the USA is not the same as FIRE in Switzerland or France.
Many shareholders have a 100% US stock portfolio.
On the other hand, note that a 100% US portfolio for a US resident (USA) does not have the same meaning compared to a European resident with a 100% US portfolio.
Example
For example, let's imagine Joe, who lives in Cleveland, USA, and François, who lives in Lausanne, Switzerland.
Let's imagine that both shareholders have a stock portfolio of USD 600,000 in an SP500 ETF (US stock market).
At first glance, we might think that both shareholders have the same opportunities to become financially independent. But not at all! For two reasons:
- The cost of living in the region
according to an article1, it is possible to live in Cleveland (USA) on 2,000 US dollars (approximately 1,600 CHF) per month. Therefore, if Joe applies the 4% rule, Joe “only” needs 600,000 USD in his SP500 ETF to become financially free.
While François, who lives in Lausanne, will find it very difficult to achieve FIRE with less than CHF 3,200 per month (around USD 4,000). Therefore, if he applies the 4% rule, François needs more than USD 1,200,000 in his SP500 ETF to become financially free.
We conclude that the region of residence is decisive for being FIRE. In this case, François needs twice as much money as Joe, even though he has the same wealth.
2. The exchange rate
It's important to remember that at the time of writing, USD 600,000 does not mean CHF 600,000. Indeed, the CHF is currently stronger than the USD!
As I write these lines:
- Joe = 600,000 USD
- François = 600,000 USD = 482,750 CHF
In this example, we conclude that after the currency conversion, François doesn't even have CHF 500,000 in his US ETF. This puts him even further away from his FIRE goal.
In conclusion, in this situation, François has 3 aspects which are unfavorable to him:
1) He lives in a more expensive area than Joe
2) His wallet is in USD and USD is less valuable than CHF (CHF is the currency of his country of residence)
3) From 2006 to 2024, the USD has lost value against the CHF
Should you invest only in your country's currency?
👉 Not necessarily. The most important thing is high yields!
To give an example from Switzerland, to my knowledge, I do not know of any Swiss investment that is as diversified, passive and with such a profitable performance history compared to the SP500.
For example, as I write this, the SP500 VOO ETF has gained 13.61 TP3T annualized (in USD) over 10 years. That's over 2401 TP3T in 10 years!
If we convert 13.6% annualized from US dollars to CHF, we get 11% annualized in CHF (at the time of writing)!
Do you know of a Swiss or European passive investment with a return history of more than 11% per year (or more than 200TP3T in 10 years) between 2015 and 2024? For a management time of only 5 minutes per month?
However, it should be noted that in the case of Switzerland, in recent years there has been a depreciation of the US Dollar against the Swiss Franc.
Devaluation of the US Dollar against the CHF VS the performance of an SP500
During the period I analyzed (2015-2024), the SP500 (US stock market) gained 242% in 10 years. If we convert the return to CHF, the result is 194%.
Over the same period, the CHF gained 11% against the USD.
We therefore conclude that the American stock market has gained 183% in 10 years (converted into CHF).
| Return in 10 years | |
|---|---|
| ETF VOO (500 US stocks) | + 194% (converted to CHF) |
| US Dollar loses against CHF | – 11% |
| Total gross yield | + 183% |
👉 Therefore, Even with the devaluation of the USD against the CHF, the US stock market remains an investment with an excellent return!
In any case, I don't know of a passive return with more than 183% in 10 years in Switzerland or in Europe.
The value of USD -> EUR vs. the yield of an SP500
For a resident in Europe with EUR as currency, here is the same comparison but with EUR as the currency being compared:
| Return in 10 years | |
|---|---|
| ETF VOO (500 US stocks) | + 207% (converted to EUR) |
| US Dollar Gains Against the EUR | +15% |
| Total return | + 222% |
In this case, Euro-based countries that invested in the US earned more returns than Swiss shareholders. For 2 reasons:
- The dollar increased in value against the EUR, while the USD lost value against the CHF.
- The USD->EUR exchange rate has less impact than the USD->CHF exchange rate.
On the other hand, it should be noted that I understand that some investors wish to balance their financial assets with a local or regional investment.
Should you invest in your region?
It is not an obligation, but it is preferable, because of:
- Stabilization of the exchange rate
- Investing locally
Indeed, investing in your country or region allows you to:
- Be less subject to the exchange rate
- To help the local economy (in theory)
- Create jobs in your country of residence (in theory)
Therefore, for a shareholder residing in Switzerland, why not hold a percentage of their financial assets in Swiss francs?
As for a French resident, why not hold a percentage of their investment in Euros?
What is the ideal percentage to invest in your country's currency?
In my opinion, for a resident of Europe or Switzerland, here is the percentage that I would invest in my country's currency:
- Switzerland with CHF = 15%
- Countries with Euro = 15%
The rest of the percentage I will simply invest in an S&P 500 ETF or a global ETF.
- ETF SP500 or ETF Global = 85%
👉 In my opinion. Here is an example of a stock portfolio to hold:
| Percentage in an SP500 ETF | Percentage in a local investment (Switzerland or Europe) | |
|---|---|---|
| Swiss | 85% (ETF SP500 or ETF Global) | 15% (Swiss investment) |
| Europe | 85% (ETF SP500 or ETF Global) | 15% (European investment) |
It's worth noting that you don't necessarily need to invest in the stock market to invest locally. For example, if you buy your primary home or have a savings account, this already contributes to the 15% of local investment!
What regional investments do you suggest to balance currencies for a resident in Europe?
In my opinion, it will depend on whether you live in a country with the EURO or in Switzerland with the Swiss Franc.
Here's how I'll invest for each resident (this is not investment advice).
- Resident in Europe with EUR as currency
If you live in a country with the EUR, then there are two investments that I consider interesting:
- European SCPI
In order to invest in passive real estate in various European countries
- ETF STOXX 600
To invest in the top 600 European stocks
Here is a table with a summary of each placement:
| European SCPI | ETF STOXX 600 | |
|---|---|---|
| Quick description | Investment in various real estate properties in Europe, in a passive manner | Investment in the top 600 European stocks |
| Gross annualized return (Based on past data) | 7-10% (with the best SCPIs) | 6% |
| Costs | students (estimate 10%-15%) | Reasonable (Estimate 0.5%) |
| Tax | According to SCPI and according to the taxation of your country of residence | Depending on the tax system of your country of residence |
| Annualized Net Return (Estimate) | 4-7% | 4-5% |
- Resident in Switzerland with CHF as currency
In Switzerland, there are two investments that I consider interesting:
- 3a Global 100
To invest in Swiss and global stocks + save hundreds of CHF in taxes.
- 3a Switzerland 100
To invest in Swiss stocks + save hundreds of CHF in taxes.
Here is a table with a summary of each placement:
| 3a Global 100 | 3a 100 Switzerland | |
|---|---|---|
| Quick description | Investing in global and Swiss equities | Investing in Swiss stocks |
| Investment in Switzerland | 40% | 100% |
| Investment in the world (excluding Switzerland) | 60% | 0% |
| Gross annualized return (according to past data) | 7% | 6,5% |
| Management fees | 0,4% | 0,4% |
| Taxes | Good taxation | Good taxation |
| Annualized Net Return (Estimate) | 7% | 6,5% |
Investment example
Here is an example of an “aggressive” investment portfolio for a Swiss resident and a French resident (not investment advice!)
| Investment example | Expected gross yield in CHF approximate (Based on past data) | |
|---|---|---|
| Swiss resident | 85% = ETF SP500 15% = 3a Switzerland 100 | 9-10% per year |
| Resident in France | 85% = ETF SP500 15% = European SCPI | 9-10% per year |
If you want to invest in a more “defensive” way, here is an example of financial assets (not investment advice):
| Investment example | Expected gross yield in CHF approximate (Based on past data) | |
|---|---|---|
| Swiss resident | 60% = ETF SP500 25% = 3a Global 100 15% = 3a 100% cash | 5-6% per year |
| Resident in France | 60% = ETF SP500 25% = SCPI 15% = Livret A in France | 5-6% per year |
The importance of conversion fees
For a resident of Europe (including Switzerland), it is very likely that part of their stock market assets are invested in a foreign currency.
👉 Therefore, It is important that conversion costs are as low as possible !
To give my example, the majority of ETFs I invest in are in USD. Therefore, I set myself a limit of a stock market account that charges a maximum of 0.25 % in CHF -> USD conversion fees.
- Maximum commission for a currency conversion fee = 0.25%
In reality, I don't want my high returns with a US ETF to be eaten up by a very unfavorable exchange rate!
Conclusion
Before making a financial investment, the investor must analyze 3 aspects:
- If the investor invests in his country's currency
- If the currency is foreign, check the exchange rate
- If the investment invests in its country
If you reside in the United States, then investing in the United States with USD is preferable.
On the other hand, if you live outside the USA, here is how I think it is best to diversify your financial assets:
- 85% = ETF SP500 or ETF Global
- 15% = Investment in the currency of the country of residence
As for the readers of this blog, they are mainly Swiss and European readers.
Therefore, for the 15% of local investment, I propose 2 investments depending on the country of residence:
- Switzerland = 3a global 100 or 3a Swiss 100
- European country with the EURO = European SCPI or ETF Stoxx 600
Once you have acquired a considerable fortune, do not forget to convert your wealth into the currency of your country!
For example, for a shareholder residing in Switzerland who holds USD 600,000 in an SP500 ETF, in reality, after the conversion, he does not even hold CHF 500,000.
Note that it is also important to take into account conversion costs.
Indeed, if you invest abroad, choose a bank or trading account with reasonable conversion fees so as not to lose too much money in commissions.
In my opinion, 0.25% is the maximum commission a stock account should charge for conversion fees. !
7 key points from this article
Here is a table to conclude the 7 key points of this article in my opinion:
| 1) – Invest 85% in an SP500 ETF or a Global ETF |
| 2) – Invest at least 15% of your assets in an investment from your country (or in an investment with the same currency) |
| 3) – A real estate purchase in your region or a savings account contributes to the 15% of assets in a local investment |
| 4) – For a Swiss resident, as a national investment, I like the 3a Swiss 100 or the 3a Global 100 |
| 5) – For a European resident, as a regional investment, I like a European SCPI or a STOXX 600 ETF |
| 6) – Don’t forget to convert your wealth according to the currencies invested |
| 7) – The commission regarding the exchange rate must be a maximum of 0.25% |
Investing Abroad: What the Exchange Rate Doesn't Tell You
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