Investing Talk #6: International Investing
Investing in different currencies (aka foreign exchange or FX investing) can help you diversify your portfolio, hedge against inflation, or speculate on global economic trends. But it also comes with risk — especially from volatility, interest rate shifts, and geopolitical factors.
. Ways to Invest in Foreign Currencies
| Method | How It Works | Best For |
|---|---|---|
| Currency ETFs | Buy ETFs that track foreign currencies | Simple, beginner-friendly |
| Forex Trading Platforms | Trade currency pairs directly (e.g. EUR/USD) | Advanced traders |
| Foreign Currency Accounts | Hold cash in foreign currency at a bank | Travelers, expats |
| Foreign Bonds or Stocks | Buy assets priced in other currencies | Indirect currency exposure |
| Multinational Stocks | Invest in global companies (e.g. Nestlé, Toyota) | Passive exposure |
| CDs or deposits abroad | Earn interest in foreign currency | Conservative savers |
2. Currency ETFs – The Easiest Way
These are like stock ETFs, but they track the performance of a currency. Examples:
| ETF | Tracks |
|---|---|
| UUP | U.S. Dollar Index Bullish |
| FXE | Euro |
| FXY | Japanese Yen |
| FXB | British Pound |
| CEW | Emerging Market currencies |
Pros: Easy to buy/sell through a brokerage
Cons: Management fees, not suitable for long-term hold due to inflation drag
⚖️ 3. Forex Trading (Currency Pairs)
You can trade pairs like:
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EUR/USD (euro vs. US dollar)
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USD/JPY (US dollar vs. Japanese yen)
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GBP/USD (British pound vs. US dollar)
High leverage is common — small moves can mean big gains or losses.
Pros:
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24/5 market
-
Very liquid
Cons:
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Complex and volatile
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Best for experienced traders
4. Foreign Currency Bank Accounts
Some banks let you hold savings in other currencies (like euros or Swiss francs).
Useful if:
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You live abroad or plan to travel
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You're trying to hedge against local currency depreciation
5. Indirect Currency Exposure
You can also invest in:
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Foreign bonds (e.g. Indian government bonds in rupees)
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Global mutual funds or ETFs (exposed to multiple currencies)
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Real estate abroad
This gives you currency exposure without needing to actively trade.
Currency Investing Strategy Tips
| Tip | Why It Matters |
|---|---|
| Diversify | Don’t bet on one currency — spread risk |
| Understand interest rates | Currencies often follow central bank policy |
| Watch inflation and debt levels | These erode currency value |
| Use stop-losses in forex trading | Limit losses if currencies move suddenly |
Example: Hedging with a Currency ETF
Let’s say you live in the U.S. but plan to move to Europe in 2 years. You can buy:
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FXE (Euro ETF) to protect against a falling dollar
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So if EUR/USD rises, your ETF gains value even before you move
Risks of Currency Investing
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High volatility
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Requires understanding macroeconomics
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Tax complexity (capital gains on currency movements)
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Leverage risk in forex trading
Summary: Which Method Fits You?
| Goal | Best Method |
|---|---|
| Beginner / Simple Diversification | Currency ETFs |
| Global Exposure via Stocks | Multinational Companies or ETFs |
| High-Risk Trading | Forex platforms |
| Safe Hedge or Savings | Foreign currency bank accounts |
| Income in Foreign Currency | Foreign bonds or CDs |
helps diversify your portfolio across geographies, currencies, and economies. It also lets you tap into faster-growing markets or hedge against a weak domestic market.
Let’s break down how to do it — and specifically explain how Certificates of Deposit (CDs) compare.
Invest in Stocks in Other Countries
1. International Stock ETFs or Mutual Funds
The easiest and most diversified way.
| Fund Type | Example Ticker | Focus |
|---|---|---|
| Global (ex-US) | VEU, VXUS | Entire world excluding U.S. |
| Emerging Markets | VWO, EEM | India, Brazil, China, etc. |
| Developed Markets | VEA | Europe, Japan, Australia |
| Country-specific ETFs | EWJ, EWZ | Japan (EWJ), Brazil (EWZ), etc. |
Pros: Low cost, diversified, easy to buy
Cons: No control over individual stocks
2. American Depositary Receipts (ADRs)
U.S.-listed shares that represent a foreign company (in USD).
Examples:
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Alibaba (BABA) – China
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Nestlé (NSRGY) – Switzerland
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Toyota (TM) – Japan
Pros: Trade like U.S. stocks
Cons: Limited selection compared to native markets
3. Direct Stock Purchase on Foreign Exchanges
Using an international brokerage (e.g., Interactive Brokers).
| Exchange | Country | Example Stocks |
|---|---|---|
| LSE | UK | Unilever, Barclays |
| TSX | Canada | Shopify, Royal Bank |
| NSE/BSE | India | Infosys, Reliance |
| TSE | Japan | Sony, SoftBank |
Pros: Full access to foreign stocks
Cons: Currency risk, extra fees, foreign taxes
How Does This Compare to CDs?
CDs (Certificates of Deposit) are low-risk savings products offered by banks — not an investment in foreign companies or markets. But you can hold CDs in foreign currencies.
Foreign Currency CDs
| Feature | Description |
|---|---|
| Currency | Denominated in EUR, GBP, AUD, etc. |
| Bank | Offered by global or large U.S. banks |
| Purpose | Hedge against USD weakness, earn foreign interest |
| Risk | Currency fluctuation can offset gains |
CDs = Capital preservation
Foreign Stocks = Growth investing + risk
Why Invest in International Stocks?
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Diversification beyond U.S. economy
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Access to emerging market growth
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Hedge against domestic currency risk
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May outperform U.S. in certain cycles
Risks to Watch
| Risk Type | Description |
|---|---|
| Currency Risk | Foreign currency movement impacts returns |
| Tax Complexity | Foreign dividend taxes or withholding |
| Political Risk | Unstable governments, regulation shifts |
| Market Risk | Different market structures/volatility |
Which Option Is Best for You?
| Your Goal | Best Option |
|---|---|
| Simple, diversified exposure | International or global ETFs |
| Specific country/stock access | ADRs or foreign brokerage accounts |
| Conservative currency hedge | Foreign currency CDs |