Awareness of FX impact on your portfolio
Awareness of FX impact on your portfolio
In the second part of this series, we examine the impact of currency movements on your investment portfolio.
Just as you would not put all your eggs in one single stock, there are merits to having other currencies as part of your investment portfolio, whether on its own or as part of your assets denominated in foreign currencies. Holding on to foreign currencies can actually protect your portfolio from unexpected risks and aid you in reaching your investment goals.
By diversifying your FX portfolio, you reduce unsystematic risks that are tied to specific asset classes. Moreover, diversifying across a range of markets may help you receive more entry signals and this increases your chance of encountering favourable market conditions.
If you refer to our earlier post on the trend of the USD against the SGD, it is important to decide the allocation of SGD versus non-SGD exposure to ensure what the composition of the non-SGD exposure should be. This ensures a globally balanced portfolio that produces better risk-adjusted returns with a lower level of volatility as compared to holding an SGD-only portfolio.
You may also need to account for your longer-term life goals, such as sending your child overseas to study. An estimate of how much you would need can be found here.
Therefore, portfolio diversification through an exposure to currencies of countries that are associated to these goals would reduce overall volatility.
For example, someone with a business in the US and diversified SGD-based investment portfolio could be looking to send his children overseas to study.
If the country of choice happens to be Australia, he may need to consider have a strategic FX portfolio allocation of towards SGD, USD and AUD, in line with his needs.
With our OCBC new FX execution platform, we provide you with seamless and secure exchanges of currencies at attractive rates, along with a constant access to wealth insights to keep you updated on the latest FX market trends.
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