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How exchange rates could impact your investments

Investing internationally can be different than investing in your local market. When you invest with Passfolio, your investments and buying power are in US dollars. This means that the yield of your investments will be affected by the exchange rate when you withdraw funds and convert them back into your local currency. 

If the US dollar appreciates, that may favor your investments, whereas a decrease in the purchasing power of the dollar may impact your investments negatively. As an international investor, it is important that you keep this in mind!

Whenever you buy shares of a foreign stock, you’re actually making two investment decisions. You’re betting on both the performance of the company and the currency itself. 

The impact of currency fluctuations

Suppose a company named XYZ has a share price of 550 USD and that the BRL-USD exchange rate is 5,50 USD. To find out how much a share of XYZ is worth in Brazilian Reais, we simply multiply the share price in US Dollars (550 USD) by the exchange rate (5,50 USD). A share of XYZ, therefore, costs 3025 BRL. 

Let’s suppose you place an order for 10 shares—a total investment of 3025 BRL. 

Now let’s fast forward six months. Great news: shares of XYZ have risen 50% to 825 USD. You mistakenly figure that you’ve made a 1512 BRL return on your investment and decide to lock in your profit.

However, while shares of XYZ rose 50%, something also happened to the value of the Brazilian Real. By the time you sold the shares, the BRL-USD exchange rate changed and is now 2,75 USD. In real terms, you actually lost money - now you’re left with just 2,268.75 BRL. 

Similarly, if the US Dollar appreciates in relation to the Brazilian Real, that will increase the yield of your investment when you convert your dollar funds back to your local currency. Historically, the US Dollar has performed better than the Brazilian Real, albeit past performance does not guarantee future returns. See the chart below:

USD/BRL Chart (Jan 1995 - Mar 2021) - Source: TradingView
USD/BRL Chart (Jan 1995 - Mar 2021) - Source: TradingView

While currency fluctuation can work in your favor, it’s always a variable and investors should be prepared for favorable and unfavorable outcomes.

Invest in US stocks with Passfolio

With Passfolio Securities, you can start investing in US stock with as little as $1 - all with no commission fees¹². We make investing in US assets accessible and even accept local deposit methods such as TEDs. 

 

Download Passfolio on the App Store or on Google Play. Find out more at www.passfolio.us 

 

‍Examples are for illustrative purposes and do not take into account dividends, brokerage commissions, or other transaction costs. 

 

¹ Please see our fractional shares disclosure.

²Securities less than $5 cost $0.02/share. Please see our disclosures on other charges.

Please read important legal disclosures that apply to your relationship with Passfolio.



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