If you buy a share or exchange traded fund (ETF) listed outside New Zealand, it’s not just changes in the share price that will determine your return. You also need to keep an eye on the exchange rate between the New Zealand dollar and the currency in question. While currency moves don’t have a significant bearing on long-term returns and at times they can help reduce volatility, over shorter periods they can have quite a big impact. Many local investors are happy to take on some currency risk, and the best way to think about this is to consider it an insurance policy against our small, vulnerable economy. However, if that worries you or if you dislike the idea of something else to try and predict, there are ways to mitigate the impact of potential changes. Holding a portion of your wealth outside our shores is crucial for New Zealand investors, and we shouldn’t let the prospect of currency movements dissuade us from taking opportunities in other markets.

Ask this episode

“What did the council decide on item 42?” — answered with the speaker and the moment.