Currencies

Revised by Ricardo Ribeiro

In simple terms, investing in currencies is like holding cash in a currency other than your country’s currency.

For example: if you live in the USA, putting part of your money into Euros is a currency investment. You would make money if the Euro becomes stronger against the Dollar, and would lose money if the Dollar becomes stronger against the Euro.

There are different ways to invest in currencies:

  • Holding cash in a foreign currency
  • Buying foreign assets (here you also have the asset risk)
  • Using derivatives (better left only for investment professionals)

It is important to note that it can be very risky to invest in currencies because currencies can be quite volatile. Many factors can affect currency prices.

I am talking about currencies here to provide a bigger picture.

If done well, investing a little bit in foreign assets might provide better portfolio diversification. However, unless you absolutely know what you are doing, better let currencies alone.

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