Currency Loss on Investments

𝘛𝘩𝘪𝘴 𝘱𝘰𝘴𝘵 𝘪𝘴 𝘯𝘰𝘵 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘢𝘥𝘷𝘪𝘤𝘦, 𝘤𝘢𝘭𝘤𝘶𝘭𝘢𝘵𝘪𝘰𝘯𝘴 𝘢𝘯𝘥 𝘳𝘦𝘴𝘦𝘢𝘳𝘤𝘩 𝘮𝘶𝘴𝘵 𝘣𝘦 𝘥𝘰𝘯𝘦 𝘺𝘰𝘶𝘳𝘴𝘦𝘭𝘧 𝘣𝘦𝘧𝘰𝘳𝘦 𝘵𝘢𝘬𝘪𝘯𝘨 𝘢𝘯𝘺 𝘢𝘤𝘵𝘪𝘰𝘯 𝘪𝘯 𝘵𝘩𝘦 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘮𝘢𝘳𝘬𝘦𝘵𝘴.

I finally sold part of my Apple (AAPL) stock after 1,379 days. With a current valuation of more than 30 times earnings and significantly lower growth prospects, I decided to look for growth elsewhere.

I wanted to write this short post to show how currency rates, even on stable currencies such as the EUR and USD, can have a large impact on your returns. Especially for new traders or investors it is often overlooked.

I opened my trade on Dec 14, 2020, for a price per share of $123.08. The USD to EUR rate was equal to 0.8242. So this cost me around €101.44 per share.

I closed my trade on Sep 23, 2024, for a price per share of $227.50. The USD to EUR rate was equal to 0.8987. So this yielded me around €204.45 per share.

Assuming I held onto all the dividends in USD (a total of $3.465 per share) and finally converted everything back to EUR on Sep 23, 2024, I made the following returns:

In USD: 84.84% or around 18.13% per annum.

In EUR: 101.5% or around 20.87% per annum.

This is a difference of more than 2% per year, for more than 3.5 years!

This can also backfire as for example the USD to EUR rate dropped from 1.0421 on Sep 28, 2022 to 0.8987 on Sep 23, 2024 (≈ -13.76%). If you bought shares in Apple for around $148.2 and sold them at $227.5, this would result in a USD profit of 53.51% but only a EUR profit of 32.38% (excl. dividends). Reducing profits significantly.

Hence if you are trading in another currency, always remember to check whether you are hedged against currency risk or that you calculate your % returns back to your local currency.💡