WITH a few clicks of a button, investors can be happily making investments around the world, with many choosing to diversify their portfolio overseas.

But many often forget that they aren’t making a single investment when they decide to do so.

They are in fact, making two investments: the first in the asset they want; and the second into the currency of that asset.

More often than not, it’s the major currencies of major countries.

Below is the return of the Japanese stock market since the start of 2020; starting off with the expected Covid downturn, followed by a nice steady climb up to a 50% gain as of today.

It’s an annual return of around 11.5%.

Looks good, right?

Source: 7IM/Factset

And if you like your returns in Japanese Yen, it is good.

But I suspect that you probably pay for most of your stuff in pounds sterling?

That’s what the purple line shows – the Japanese stock market returns, translated back into pounds sterling.

Source: Factset/7IM

That’s a 16% return over the period.

Just over 4% annualised.

The foreign exchange markets took 7% of your returns away each year!

Of course, there are periods where the currency will move in your favour too, but this highlights how variable the outcome can be when you put a border between you and your investment.

The key thing to remember is that when people talk about a market or a stock moving by x% in portfolios, that’s not the whole story.

If you have to convert this back into pounds, the whole picture could change.

Taking advice when making your investment decisions can help.

At Future Life Wealth Management, we understand the importance of investing globally and how foreign exchange can be managed within a portfolio.

Please don’t ever hesitate to get in touch by ringing myself or one of my colleagues on 01246 435996.