When it comes to people’s concerns, one that comes up again and again is the exchange rate. It seems that a fair majority of expats have a daily ritual of seeing what the rate is, so they can worry about it. Now we have smart phones, meaning that we can check in several times a day and let currency worries make us properly miserable.
We will eagerly cling to the musings of economists and currency experts, with a desire of winning. I say “winning” as it is a game that people have a desire to come out on top, thus beating the others, a contest.
The only real way to win at currency, is to only hold your money in the one that you actually spend on a regular basis. Anything else is clearly a risk. How very dull for the gamers!
When it comes to currency, the playing “winners” tend to do so out of sheer dumb luck, not any super ability to see round corners and this very much includes the experts.
I always remember sitting in a meeting, in central London, (at a nice French restaurant, oddly) with an executive of one of the worlds largest investment banks, discussing their quarterly glossy newsletter, which they sent to their ultra wealthy clients.
It contained an interesting currency section where it analysed and predicted the future of the Great British Pound versus the Euro. I had seen it, indeed, I got a copy each quarter, which his assistant kindly (seemingly surreptitiously) sent to me. I gleefully always went to this currency section when it arrived. Moreover, I had kept and reviewed each copy. Afterall, if these guys do not have the answers, who does?
I said to him “Do you realise in each quarter, over the last four years, not even one of your forecasts has been remotely right?”. His face was filled with something resembling the colour of his Bordeaux. “Ah yes, you spotted that? We are trying to do better”. He muttered for a bit about change of team and systems and rapidly changed the subject, hastily returning the offending publication to his briefcase.
I have a plethora of other stories I could tell you, including the best and brightest of Threadneedle Street getting it entirely wrong, indeed triggering their own bankruptcy, along with huge losses for their clients (who were hopefully very aware of the risks involved in international money market trading).
When I think of the last 25 years of doing this job, I cannot think of a single person I have spoken to who purchased a currency that they did not actually spend on a regular basis, and have it work out well. Again, any winners confessed (after some probing questions) it was luck. Even a broken clock is right twice a day, so surely some people out there did “win”, but the point is that it is exceedingly rare.
What should I do?
Stop playing, and start planning, which you may not be very stunned to learn, looks nothing like deck of cards in Poker, with a lucky hand to win. With planning, the daily seizing of expert musings and moving currency, like cards in a Poker game, comes to an end. It is time to stop this madness and enjoy life!
Many people are so focused on the game they rarely stop to consider how currency actually affects their own personal, often unique, situation.
If we step aside from global economics / currency pundits and stop trying to see round corners, doing some effective financial planning, we can gain more clarity.
If you live in France, yet have significant money in Sterling, you might do better taking the long term view. When doing so, it makes sense to protect your capital from the downside by ensuring that you have enough Euros to live on. This means really sitting down and taking the time to do some calculations and projections. What are you sure you will need over the next few years? What might you need in the event of unknown emergencies / unexpected expenditures over the next few years? What is a comfortable / possible length of time to cover? If you are not comfortable doing this yourself, engage a financial professional to help you.
Several years of forward income (or sufficient to merely supplement your income) in Euros, may only be a small portion of your overall capital, yet such a buffer allows you to tolerate Sterling weakening, without it affecting your own planning or level of anxiety.
Should Sterling strengthen in the shorter term, you still have most of your money in that currency, so have not lost much by protecting your savings from the uncertain outlook.
What this enables you to do is to watch currency movements as a spectator, not as someone actually caught up in the thick of it, like those anxiously clinging to their news publication or internet connected device. If you know that you have, for example, five years of forward income and an emergency fund, in the currency in which you live, do the inevitable short term currency movements matter to you?
We have come across some people who feel very uneasy about such a strategy, even though they know in their hearts (well actually their heads) it is completely logical.
“But this is the way I have always done it”, as confirmation bias kicks in (our brains are wired to dismiss data / counsel that conflicts with our strongly set beliefs).
When it comes to “winning” there is a love to brag about it to their friends, family and neighbors, so taking themselves out of play in this way can cause significant FoMO (Fear of Missing Out). Eventually, they get over it when they discover the best way to win is not to play.
When it comes to winning at exchange rates, don’t play the game. There is simply no currency to it!
This article was first published in the Connexion August 2021