When making investment choices there are many considerations to ponder before making what often turns out to be a very major decision.
In consultation with your Advisor, you would have looked at options on the type of products that best suits your needs, including accessibility, risk profile, types of funds and charging structures. All of these require major consideration.
However, more recently there is another area that requires further consideration. Since the Brexit referendum in 2016, we haven’t seen the GBP v Euro rate as attractive as it is at the time of writing this article.
Over the last 5 years or so, those holding GBP have tended to remain in GBP as the rate languished anywhere between parity and 1.15. However, the last 6 months have seen a steady increase and we are now sitting at highs of 1.19-1.20, a rate that we haven’t really encountered since before the referendum.
As an advisor, it’s been difficult, unless circumstances really dictate, to convert Sterling, however with Euro portfolios producing returns equivalent to those held in GBP, is it time to consider a switch or set up a new investment in Euros?
There is often a sense of nostalgia about holding GBP, but if you are intending to take income from your portfolio or eventually use the funds here in Spain, you are adding an additional risk.
Investment example
As a very basic example, an investment of GBP 100,000 earning 6% would provide you with an annual income payment of £6000 @ 1.20 equals €7,200. However, if we see a reversal of that to say 1.10 it would provide €6,600.
If you transfer now and lock in the rate GBP 100,000 @ 1.20 equals €120,000 earning 6% produces €7,200, the value of income would be secured and only investment performance may affect the amount.
It obviously can’t be guaranteed that the rate won’t move higher but adding in currency risk into an investment portfolio can be avoided, it’s depressing to see investment gains wiped out through currency fluctuations.
If you wish to consider the merits of switching the currency of your existing portfolio/pension fund, contact us today for more information.