Is your retirement fluctuating with the price of a baguette?
We need to talk about currency.
I know, it is not the most exciting topic. It is certainly not as fun as discussing which vintage of Bordeaux to stock up for your next special function (2015 was excellent, by the way).
But if your assets are in one currency and your daily life is in another, currency risk is the invisible guest at every dinner table.
I see this often with the families I work with. You might have a pension in Sterling, savings in Rands, and a mortgage in Euros. It sounds cosmopolitan, but if it isn’t managed correctly, it can be a source of constant, low-level anxiety.
I recently spoke with a South African client who is currently living in London.
They had done everything right, had worked hard and built a substantial nest egg in Rands, intending to use it to supplement their lifestyle in the UK.
The problem? They hadn’t accounted for the fact that the Rand and the Pound don’t always dance to the same rhythm. In fact, sometimes they are at completely different parties…
Here’s why it’s important to understand this.
When the exchange rate swings, your purchasing power swings with it. Suddenly, a political shift in Pretoria or an economic announcement in London changes the math. That “safe” monthly withdrawal might buy you 20% less than it did six months ago.
When you’re in this position, you may find yourself checking the exchange rate app every morning before you’ve even had your coffee. That is not financial freedom; that is just stress with a different name.
It’s often helpful to think of this like we would when packing for a trip.
You wouldn’t pack your ski gear if you were heading to a beach in Nice. You wouldn’t pack flip-flops for a winter in Chicago.
Yet, many expats keep their investments dressed for the wrong climate. They have “Rand liabilities” (spending money in South Africa), but “Dollar assets,” or “Euro bills”, but “Sterling savings.”
This is why a big part of value-adding financial planning focuses on matching your money to your life (and not the other way around!).
The solution isn’t necessarily complex financial engineering. It is about matching your liabilities (your life costs) with your assets.
It doesn’t mean you have to sell everything and move it tomorrow; often, that triggers tax events we want to avoid. But it does mean we need to build a strategy and a buffer.
Some of the work I’ve done with clients in the past looks at ensuring they have 12 months of living expenses in the currency they actually spend at the supermarket. That way, if the markets wobble or the exchange rate dives, they don’t have to panic. They can sit tight, drink their coffee, and wait for the turbulence to pass.
You shouldn’t have to worry if the price of your baguette—or your morning commute—has gone up because of an election halfway across the world.
Let’s make sure your plan is robust enough to handle a bit of turbulence.
Feel free to reach out if you’d like to review your currency exposure.
