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Cross Border Investments – Currency Counts!

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Cross Border Investments – Currency Counts!

By - Wednesday 03 March 2010

Many people have bought property abroad over the past few years, and despite the current general lack of cash, people still are. What most overlook though is the impact that differing currencies can have on the said purchase or investment, as well as how to actually take advantage of the strength or weakness of a currency.

Almost all property agents will go on about currency exchange, primarily because they make a commission from referring you to a currency broker. Few however will be able to give you much advice as to what the differences or effects are when making an investment of such a size from one currency to another.

If you are buying abroad for personal use as a holiday home, the rate of exchange is not something that will have a notable impact on your purchase in the short term, mainly because you are buying something that you like, rather than as an investment. (Exceptions to the rule of course would be if you were to buy into a region that has an incredibly volatile currency)

From an investment angle though, timing (and recognizing the right time relatively) can have a significant impact on your overall investment performance. It’s often said very generally that “timing is everything” when it comes to investment. Whilst largely true, the point of this post is to establish why.

It basically all boils down to the strength of your own currency that you hold your cash in right now, against the currency in which you intend to purchase.

If right now for example you are holding UK Pounds, investing into a Euro or Dollar based investment is maybe not the best move. Why? The Pound is simply very weak at the moment. There is a good chance it will recover of course, but the fact remains your crispy pounds just won’t get you as many Dollars or Euros as they would or could.

On the other hand, if you were sat on a pile Dollars, and were looking for something to do with them, the USA could be seen as a little volatile right now. With the Pound being weak as it is, it makes sense to take advantage of that weakness.

As you might have gathered, it’s all about strengths and weaknesses, as investment often is, but what to do if you are sat on Pounds? Quite simple, invest at home! This achieves two things. Firstly, it avoids you taking a beating through the currency exchange, and secondly (albeit the much bigger picture) it goes some way to strengthen the local market, thus potentially stimulate recovery.

Most currency brokers will attest that as a rule of thumb, if the currency you are holding is weak, invest at home in your own currency. If on the other hand, you can find an investment in another country where their currency is weaker than yours, go and take advantage of it! This won’t of course guarantee success and additional profit, but certainly a rule to bear in mind.
 

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.


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