Learn to Invest: Who cares about currencies in investing?

What Is Currency Risk in Investing — And Why It Matters to Your Portfolio

A simple, practical guide for young investors to understand how currencies can impact their investing returns.

“When you invest globally, you’re not just betting on stocks — you’re betting on currencies too.”

What Is Currency Risk in Investing?

Currency risk (also called “foreign exchange risk”) is the risk that the value of your investments will change because of moves in currency exchange rates.

When you invest in:

Foreign stocks
International bonds
Global real estate funds

You’re also exposed to the risk that your home currency strengthens (or the foreign currency weakens) — which can reduce your returns, even if the asset performs well in its local market.

📚 Example:Imagine you’re a European investor who buys US stocks. If the US dollar weakens against the euro, the value of your US stocks (in euros) will fall — even if the US stock price hasn’t changed.

Why Currency Risk Matters for Your Investing Portfolio

For young and beginner investors, this risk is often overlooked. But it matters because:

Currency swings can wipe out gains
You might underestimate risks when investing abroad
Global investing isn’t just about asset prices — it’s about currency moves too

If you ignore currency risk, you might be surprised when your international investments perform worse (or better) than you expected.

When Currency Risk Is Most Relevant

Currency risk becomes important when:

You invest in foreign stocks, bonds, or ETFs
You hold foreign cash
You buy real estate outside your home country
You invest in commodities like gold, priced in US dollars

It’s even more relevant during periods of:

Global uncertainty
Shifting trust in major currencies (like the US dollar)
Political or financial crises in certain countries

For example, a recent ForexLive article highlighted how some investors are questioning the long-term dominance of the US dollar. That kind of shift would have major currency implications.

How to Manage Currency Risk in Your Investing Strategy

Common Investing Mistakes to Avoid

Ignoring currency risk when investing internationally
Chasing foreign market returns without considering currency swings
Assuming currency moves don’t matter for long-term investors

Currency moves can impact returns — even over many years.

Quote to Remember

“When you invest abroad, you’re making two bets — one on the asset, one on the currency.”