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Currency risk·4 questions

QUESTION: Currency risk: why keep a part of the portfolio in foreign currency?

Answer

Holding a part of personal or family capital in foreign currencies is one of the classic and most effective ways to protect savings from devaluation shocks of the national currency. To make this tool work effectively, start with a clear goal in figures and specific deadlines, such as accumulating a certain amount for a child's education abroad in five years. Then break this global goal down into manageable monthly or quarterly steps and be sure to include them in your personal budget.

You should review the currency portion of your investment plan about once a month to respond in a timely manner to changes in the macroeconomic environment and exchange rate fluctuations. Currency diversification helps smooth out the overall volatility of your investment portfolio and reduces the likelihood of losing the purchasing power of your capital. When the economy faces periods of turbulence, currency assets often act as a stabilizer.

To properly implement the currency component into your financial plan, use a step-by-step algorithm.

•Assess the current structure of your income and expenses, determining the share of costs tied to imported goods, travel, or foreign services.
•Set a target percentage of currency assets in your overall portfolio, which typically ranges from ten to thirty percent depending on your personal risk preferences.
•Choose suitable instruments for holding currency or its equivalents, taking into account modern infrastructure and sanction restrictions of the financial market.
•Set up automatic purchases of currency or replacement bonds with every paycheck or income receipt to average out the purchase price over time.
•Keep your currency savings in reliable brokerage or bank accounts, regularly rebalancing the portfolio during significant market conditions changes.
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