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The Federation of European Independent Financial Advisers

It’s a risk-warning that we have probably all seen numerous times, but one that should certainly not be taken for granted.

We only have to look back a couple of years to 2016 and the outcome of the UK’s referendum on its EU membership. Initially a YouGov poll indicated a narrow victory for “remain” but as soon as the results started to come in, shock took hold of the market and the pound came under fire. Sterling slumped to a 31-year low on currency exchange markets, suffering its biggest one-day loss in history. Falling 10% against the dollar and 7% against the Euro.

Sometimes the effect of currency fluctuations on the public can be overlooked. Many are aware of how changes in the currency rate can reflect on the price of imports and exports. We can also see the direct effect when we visit another country. But spare a thought for those whose income currency may not be aligned to their currency of expenditure.

There are tens of thousands of retired UK expatriates in Europe alone, and when you consider the numbers in the Far East, Australia and America as well, the totals are huge. Many of these retirees could be exposing themselves to unnecessary risk. On the night of the referendum, all of those who had earnings in Sterling may have experienced an overnight fall of 7-10% on their income in real terms.

Volatility in action

Mitigate the risk

With thoughtful planning, and investing through a multi-currency platform, there are ways in which you can mitigate currency risk and at the same time, offer some level of protection against a market crash.

A multi-currency platform will allow you to take steps to align the currency of both savings and expenditure. For example, a pension switch or pension transfer to a multi-currency International SIPP would align the currency of a client’s pension with that of their expenditure. Obviously, financial advice should be taken on whether this is a sensible course of action.

It’s not just expatriate pensioners that should consider such action

Currency fluctuations can also have a big impact on expatriate workers who are earning in a currency different to the one of their future country of residency. This can often mean that their savings are invested in an inappropriate currency and that they are therefore exposing themselves to an unnecessary risk.

A multi-currency platform can allow an investor to better align the currency of their savings and investments to that of their future expenditure. If the future destination is not yet decided, why not spread their savings over a number of different currencies in line with what they view to be their probable future currency of residency?

Diversifying your portfolio

Essentially, a multi-currency platform can help with diversification. In the same way a typical investor will invest in different asset classes (stocks, bonds, gold, property etc.) you can utilise a multi-currency platform to further help diversify an investment portfolio and reduce volatility.

So why be exposed to an unnecessary risk when there are solutions available?

The Novia Global multi-currency platform reports and facilitates investment in US Dollars (USD), Sterling (GBP), Euros (EUR), Swiss Franc (CHF), Australian Dollars (AUD), and Hong Kong Dollars (HKD).

Currency may move in a favourable direction, but is it really a risk worth taking in a world of such political and economic uncertainty?

​​​​​​​​The above article was kindly provided by Paul Forman from Novia Global​,