Hedging Currency Risk After Retirement

[MichaelB]

Yes I think that was the question. Income and expenses in different currencies. Not as easy or as simple to hedge as you might think at first.

Especially in a soft currency country. Between higher local inflation rates and appreciating currency, an expat could see effective US$ costs rising at double digit rates. In the past when that has happened, late 70s, late 80s, and even in the 90s, people exchanged large sums of $$ to local currency just in time to find themselves trapped by devaluation and exchange controls.

 

[sengsational]

Can't say I understand all of these concepts! But maybe an extreme example will help me. Say I live in Greece, and say I think the government there will be irresponsible, and the debit crisis there implodes. Wouldn't it be wise to buy equities denominated in, say, Swiss francs, let the implosion happen, and so my assets would be better preserved?

 

[nun]

Can't say I understand all of these concepts! But maybe an extreme example will help me. Say I live in Greece, and say I think the government there will be irresponsible, and the debit crisis there implodes. Wouldn't it be wise to buy equities denominated in, say, Swiss francs, let the implosion happen, and so my assets would be better preserved?

Its a dangerous game, just ask the people in Hungary who bought mortgages denominated in Swiss Francs, but have to make payments in Hungarian Forints.
The Forint has collapsed wrt to Swiss Frank leaving the mortgagees with an enormous debt.

With Greece who knows what way the Euro/Swiss franc rate will go and you also have to deal with whether Greece will stay in the Euro at all. In this case I'd buy things like real estate or German stocks.

 

[NYEXPAT]

With Greece who knows what way the Euro/Swiss franc rate will go and you also have to deal with whether Greece will stay in the Euro at all. In this case I'd buy things like real estate or German stocks.

The Swiss Franc is currently pegged to the Euro. However in the case of this thread the Swiss franc is no longer a good hedge against Dollar debasement, The Swedish Krona is now a better hedge.

 

[haha]

Its a dangerous game, just ask the people in Hungary who bought mortgages denominated in Swiss Francs, but have to make payments in Hungarian Forints.

They didn't buy mortgages; they took out loans in CHF secured by mortgages on their property. IOW, short a CHF payment stream. If they had bought mortgages they would be in the same position as the Swiss banks are- ok as long as the borrowers don't default.

Ha

 

[DangerMouse]

Not that simple. Let's say you have 500,000 euros in a German bank because you used to work in Europe. All the money is in CDs, interest about $20k a year, declared to the IRS. When do you bring the money back to the US? Would you wait 5, 10 years? Do you bring the money back to the US at all?

We have funds in Europe, Australia and the US. We treat them as 3 separate entities. We have no intention of transporting any funds from one country to the next. We figure when we spend time in Europe we will use the European funds, when we are having periods of residence in Australia we will draw on our Australian holdings and whilst we are in the US we will make use of our funds held in the US. The bulk of our holdings will remain in Australia because we know eventually we will become resident there because of the national health system.

 

[obgyn65]

While living in the US, have you thought about bringing back some euros here if /when the rate is favorable ? I am thinking of transferring euros to the US if/when the euro = $1.5. It may take several years before this happens...

We have funds in Europe, Australia and the US. We treat them as 3 separate entities. We have no intention of transporting any funds from one country to the next.

 

[ratto]

With Greece who knows what way the Euro/Swiss franc rate will go and you also have to deal with whether Greece will stay in the Euro at all. In this case I'd buy things like real estate or German stocks.

Buying/owning real estate in a foreign country can be great investment, but does carry a lot of potential complications. Some Italians already cleared their koffer to buy apartments at outskirt of Berlin as safe bet for their children. But what will happen in future, it's hard to know. If their move is already too late, it's hard to say.