She says, “Every young, attractive, eligible man or women [you get to choose the sex] will find you irresistible for life.” You rub the lamp excitedly. Unfortunately, this might spell plenty of trouble. With all the options to choose from, it might be almost impossible to choose a life partner.
Such is the case with investing. You might want a diversified portfolio of low-cost ETFs. But there are so many options. To compound the problem, they trade in different currencies.
For example, you might want a global stock market index. Should you buy Vanguard’s FTSE All World ETF? It provides exposure to almost every global stock market. It trades on the London Stock Exchange under the symbol VWRL, and it’s priced in British pounds.
Or, should you buy the iShares Core MSCI World ETF? It also tracks the global stock market. It trades on the Amsterdam stock exchange under the symbol, IWDA and it’s priced in Euros.
Plenty of people face such dilemmas. They might see Vanguard’s FTSE All World ETF and say, “It trades in British pounds. If Brexit causes the pound to crash, I would lose a lot of money.”
Others might fear the iShares Core MSCI World ETF (IWDA). They might say, “I don’t trust the Euro. If it falls hard, I might lose a fortune.”
Such thinking might sound smart. But it’s completely wrongheaded. In most cases, if you’re building a diversified portfolio of low-cost ETFs, the listed currencies shouldn’t matter. Yes, you read that right. For diversified investors, the listed currency of their ETFs is largely irrelevant.
Here’s an example. Assume you and your friend each win $100,000 USD from a trip to Las Vegas. You each decide to buy a global stock market ETF with the proceeds. You decide to buy one that’s listed in British pounds. Maybe you think the British pound is low. Converting to pounds, you believe, offers a good deal.
Your friend decides to convert to Euros, so she can buy the global stock market ETF that’s listed in Euros. You and your friend purchase your respective ETFs at the same time, on the same day.
Now assume the British Prime Minister mandates a nationwide conversion to Scientology. She also borrows trillions of pounds to build a Trump-inspired wall to surround the United Kingdom. Such strange behavior would likely crash the British pound.
Assume the Euro remains stable while the British pound falls. Would you regret not buying the global stock ETF priced in Euros, like your friend? In truth, it wouldn’t matter. If the British pound fell 50 percent, compared to the Euro, the price of the global stock index, priced in British pounds, would double.