Mark LaMonica

Question:

I am mainly invested in a spread of direct Australian Shares, ETFs and LICS. ETFs like VGS, NDQ and Managed Funds such as Magellan Global Fund to gain international exposure.

I am now researching and starting to invest in a spread of direct international shares to complete my spread.

Timing...Is it reasonable to in invest in the US stock exchanges with the Australian dollar $0.65 cents buying an American dollar? Or should I wait for one day when the currencies are lower in value?

Your thoughts would be appreciated.

Mark answers:

Exchange rates are hard since there are so many factors that influence their movements. I do think when you look back historically at the AUD / USD rates there is a pretty obvious range of values and the Aussie dollar is clearly on the weak end of that range.

To assume that it will get stronger isn't farfetched. I will say that the Aussie dollar has generally been counter-cyclical. What I mean by this is that it tends to move with commodity prices. High commodity prices often lead to economic issues in consumers of commodities and strong economic growth here.

Historically that has meant that when the local share market has done poorly as the miners have suffered from low commodity prices the returns of global shares have been helped by a falling Aussie dollar. That is an advantage for investors with global diversification. 

All that being said, timing anything is really hard. Share prices and currencies are unpredictable and I think it is generally best to just set-up a plan that is best for you and invest accordingly understanding that things will fluctuate over time but in the long-term there will be a benefit from just following the plan.

There are ways to remove currency risk using hedged version of global ETFs so maybe if you want to get exposure to the US and don't want to worry about currency you could try that approach. This will ensure you have exposure to global markets with a more diverse set of companies and sectors than are available locally.

Got a question? Email Mark at mark.lamonica1@morningstar.com

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