Strategies for saving and investing in multiple foreign currencies
If you want to use that money and maybe don't have the time to wait a few years if things should go bad, than you will definitely want to hold a good bunch of your money in the currency you buy most stuff with (so in most cases the currency of the country you live in) even if it is more volatile. Evaluating the value of currencies is always difficult because you are usually at the mercy of a central bank that can print new currency on a whim. I am trying to diversify my currency holdings but it is difficult to open foreign bank accounts without actually being in the foreign country.  Any ideas here? You don't indicate which currencies you own but I would stick with your diversified portfolio of currencies and add some physical assets as a hedge against the fiat currencies. The bad news is that foreign exchange is ultimately somewhat unpredictable, and analyzing the risk of these things is not particularly straightforward. I'm afraid I don't know what tools exist to analyze these, aside from suggesting you look at textbooks for financial analysis classes. The good news is that there are other people who deal with multiple currencies (international businesses, for instance) who worry about the same thing. As such, you can take a look at foreign exchange rate futures and related instruments to estimate what the market as a whole currently expects the values to do. The prices of these futures could be a useful starting point.
In general, to someone in a similar circumstance I might suggest that the lowest-risk option is to immediately convert your excess currency into the currency you will be spending. Note that 'risk' here refers only to the variance in possible outcomes. By converting to EUR now (assuming you are moving to an EU country using the EUR), you eliminate the chance that the GBP will weaken. But you also eliminate the chance that the GBP will strengthen. Thus, you have reduced the variance in possible outcomes so that you have a 'known' amount of EUR. To put money in a different currency than what you will be using is a form of investing, and it is one that can be considered high risk. Invest in a UK company while you plan on staying in the UK, and you take on the risk of stock ownership only. But invest in a German company while you plan on staying in the UK, you take on the risk of stock ownership + the risk of currency volatility. If you are prepared for this type of risk and understand it, you may want to take on this type of risk - but you really must understand what you're getting into before you do this. For most people, I think it's fair to say that fx investing is more accurately called gambling [See more comments on the risk of fx trading here: https://money.stackexchange.com/a/76482/44232]. However, this risk reduction only truly applies if you are certain that you will be moving to an EUR country. If you invest in EUR but then move to the US, you have not 'solved' your currency volatility problem, you have simply replaced your GBP risk with EUR risk. If you had your plane ticket in hand and nothing could stop you, then you know what your currency needs will be in 2 years. But if you have any doubt, then exchanging currency now may not be reducing your risk at all. What if you exchange for EUR today, and in a year you decide (for all the various reasons that circumstances in life may change) that you will stay in the UK after all. And during that time, what if the GBP strengthened again? You will have taken on risk unnecessarily.  So, if you lack full confidence in your move, you may want to avoid fully trading your GBP today. Perhaps you could put away some amount every month into EUR (if you plan on moving to an EUR country), and leave some/most in GBP. This would not fully eliminate your currency risk if you move, but it would also not fully expose yourself to risk if you end up not moving. Just remember that doing this is not a guarantee that the EUR will strengthen and the GBP will weaken. This is called currency speculation, and it's one of the more risky forms of investing.  Unless you have a crystal ball that tells you the Euro will move up (or down) relative to the Dollar, it's purely speculation, even if it seems like it's on an upswing.  You have to remember that the people who are speculating (professionally) on currency are the reason that the amount changed, and it's because something caused them to believe the correct value is the current one - not another value in one direction or the other. This is not to say people don't make money on currency speculation; but unless you're a professional investor, who has a very good understanding of why currencies move one way or the other, or know someone who is (and gives free advice!), it's not a particularly good idea to engage in it - while stock trading is typically win-win, currency speculation is always zero-sum. That said, you could hedge your funds at this point (or any other) by keeping some money in both accounts - that is often safer than having all in one or the other, as you will tend to break even when one falls against the other, and not suffer significant losses if one or the other has a major downturn. I would strongly recommend investing in assets and commodities. I personally believe fiat money is losing its value because of a rising inflation and the price of oil. The collapse of the euro should considerably affect the US currency and shake up other regions of the world in forex markets. In my opinion, safest investment these days are hard assets and commodities. Real estate, land, gold, silver(my favorite) and food could provide some lucrative benefits. GL mate! The other obvious suggestion I guess is to buy cheap stocks and bonds (maybe in a dollar denominated fund). If the US dollar rises you'd then get both the fund's US gains plus currency gains. However, no guarantee the US dollar will rise or when.  Perhaps a more prudent approach is to simply diversify. Buy both domestic and foreign stocks and bonds. Rebalance regularly. Here's what the GnuCash documentation, 10.5 Tracking Currency Investments (How-To) has to say about bookkeeping for currency exchanges. Essentially, treat all currency conversions in a similar way to investment transactions.  In addition to asset accounts to represent holdings in Currency A and Currency B, have an foreign exchange expenses account and a capital gains/losses account (for each currency, I would imagine).  Represent each foreign exchange purchase as a three-way split: source currency debit, foreign exchange fee debit, and  destination currency credit. Represent each foreign exchange sale as a five-way split: in addition to the receiving currency asset and the exchange fee expense, list the transaction profit in a capital gains account and have two splits against the asset account of the transaction being sold. My problems with this are: I don't know how the profit on a currency sale is calculated (since the amount need not be related to any counterpart currency purchase), and it seems asymmetrical.  I'd welcome an answer that clarifies what the GnuCash documentation is trying to say in section 10.5. With a lot excess cash you eventually have two goals: Since interest on cash bank deposits does not exceed inflation and you have currency risk, you may want to get into other asset classes. Options that might be, but not limited to are: My original statement was answering onefingerattack's query, not strategizing for institutional investors. It's very easy for instituationals to move money across borders into and out of treasuries, and to purchase gold near spot and vault it. For a retailer like onefingerattack, getting money into bitcoin is going to be much easier than opening a foreign bank account, exchanging, and transferring funds.  And my point wasn't to say that this was necessarily the best strategy because it is impossible to know. I just linked to an article about the fact that this strategy is being used by other Europeans (although, I think it's more by Greeks who worry about their Euros being nationalized and replaced with a drachma). Now, is there any clever way to combine FOREX transactions so that you receive the US interest on $100K instead of the $2K you deposited as margin?  Yes, absolutely. But think about it -- why would the interest rates be different? Imagine you're making two loans, one for 10,000 USD and one for 10,000 CHF, and you're going to charge a different interest rate on the two loans. Why would you do that? There is really only one reason -- you would charge more interest for the currency that you think is less likely to hold its value such that the expected value of the money you are repaid is the same. In other words, currencies pay a higher interest when their value is expected to go down and currencies pay a lower interest when their value is expected to go up. So yes, you could do this. But the profits you make in interest would have to equal the expected loss you would take in the devaluation of the currency. People will only offer you these interest rates if they think the loss will exceed the profit. Unless you know better than them, you will take a loss. "Here's a dump from what I use. Some are a bit more expensive than those that you posted. The second column is the expense ratio. The third column is the category I've assigned in my spreadsheet -- it's how I manage my rebalancing among different classes. ""US-LC"" is large cap, MC is mid cap, SC is small cap. ""Intl-Dev"" is international stocks from developed economies, ""Emer"" is emerging economies. These have some overlap. I don't have a specific way to handle this, I just keep an eye on the overall picture. (E.g. I don't overdo it on, say, BRIC + Brazil or SPY + S&P500 Growth.) The main reason for each selection is that they provide exposure to a certain batch of securities that I was looking for. In each type, I was also aiming for cheap and/or liquid like you. If there are substitutes I should be looking at for any of these that are cheaper and/or more liquid, a comment would be great. High Volume: Mid Volume (<1mil shares/day): Low Volume (<50k shares/day): These provide enough variety to cover the target allocation below. That allocation is just for retirement accounts; I don't consider any other savings when I rebalance against this allocation. When it's time to rebalance (i.e. a couple of times a year when I realize that I haven't done it in several months), I update quotes, look at the percentages assigned to each category, and if anything is off the target by more than 1% point I will buy/sell to adjust. (I.e. if US-LC is 23%, I sell enough to get back to 20%, then use the cash to buy more of something else that is under the target. But if US-MC is 7.2% I don't worry about it.) The 1% threshold prevents unnecessary trading costs; sometimes if everything is just over 1% off I'll let it slide. I generally try to stay away from timing, but I do use some of that extra cash when there's a panic (after Jan-Feb '09 I had very little cash in the retirement accounts). I don't have the source for this allocation any more, but it is the result of combining a half dozen or so sample allocations that I saw and tailoring it for my goals." Currency speculation is a very risky investment strategy. But when you are looking for which currency to denote your savings in, looking at the unit value is quite pointless. What is important is how stable the currency is in the long term. You certainly don't want a currency which is prone to inflation, because it means any savings denoted in that currency constantly lose purchasing power. Rather look for a currency which has a very low inflation rate or is even deflating. Another important consideration is how easy it is to exchange between your local currency and the currency you want to own. A fortune in some exotic currency is worth nothing when no local bank will exchange it into your local currency. The big reserve currencies like US Dollar, Euro, Pound Sterling and Japanes yen are usually safe bets, but there are regional differences which can be easily converted and which can't. When the political relations between your country and the countries which manage these currencies is unstable, this might change over night. To avoid these problems, rather invest into a diverse portfolio of commodities and/or stocks. The value of these kinds of investments will automatically adjust to inflation rate, so you won't need to worry about currency fluctuation. I've thought of the following ways to hedge against a collapsing dollar: Like most other investment decisions - it depends. Specifically in this case it depends upon your view of the FX (Foreign Exchange) market over the next few years, and how sensitive you are to losses. As you correctly note, a hedge has a cost, so it detracts from your overall return. But given that you need to repatriate the investment eventually to US Dollars, you need to be aware of the fluctuations of the dollar versus other currencies. If you believe that over your time horizon, the US dollar will be worth the same as now or less, then you should not buy the hedge.  If the dollar is the same - the choice is/was obvious.  If you believe the US dollar will be weaker in the future, that means that when you repatriate back to US dollars, you will purchase more dollars with your foreign currency. If on the other hand, you believe the US Dollar will get stronger, then you should certainly lock in some kind of hedge.  That way, when your foreign currency would have effectively bought fewer US, you will have made money on the hedge to make up the difference. If you choose not to hedge now, you can likely hedge that exposure at any time in the future, separate from the initial investment purchase buy buying/selling the appropriate FX instrument. Good Luck We face the same issue here in Switzerland. My background: Institutional investment management, currency risk management. My thoughs are: Home Bias is the core concept of your quesiton. You will find many research papers on this topic. The main problems with a high home bias is that the investment universe in your small local investment market is usually geared toward your coutries large corporations. Lack of diversification: In your case: the ASX top 4 are all financials, actually banks, making up almost 25% of the index. I would expect the bond market to be similarly concentrated but I dont know. In a portfolio context, this is certainly a negative. Liquidity: A smaller economy obviously has less large corporations when compared globally (check wikipedia / List_of_public_corporations_by_market_capitalization) thereby offering lower liquidity and a smaller investment universe. Currency Risk: I like your point on not taking a stance on FX. This simplifies the task to find a hedge ratio that minimises portfolio volatility when investing internationally and dealing with currencies. For equities, you would usually find that a hedge ratio anywhere from 0-30% is effective and for bonds one that ranges from 80-100%. The reason is that in an equity portfolio, currency risk contributes less to overall volatility than in a bond portfolio. Therefore you will need to hedge less to achieve the lowest possible risk. Interestingly, from a global perspective, we find, that the AUD is a special case whereby, if you hedge the AUD you actually increase total portfolio risk. Maybe it has to do with the AUD being used in carry trades a lot, but that is a wild guess. Hedged share classes: You could buy the currency hedged shared classes of investment funds to invest globally without taking currency risks. Be careful to read exactly what and how the share class implements its currency hedging though. "You sound like a savvy consumer of currencies!  ;)  You should put your insights and skepticism to use, and publish a ""currency review"" to help people decide which currencies are safest to save in.  You could also create your own currency, and assure investors that they are entitled to exchange it for a fixed amount of a commodity at any time, for instance gasoline or wheat.  &gt;I see no reason to expect bodies with shorter term interests would do a better job.  Competition." If you have significant assets, such as a large deposit, then diversification of risks such as currency risk is good practice - there are many good options, but keeping 100% of it in roubles is definitely not a good idea, nor is keeping 100% of it in a single foreign currency.  Of course, it would be much more beneficial to have done it yesterday, and moments of extreme volatility generally are a bad time to make large uninformed trades, but if the deposit is sufficiently large (say, equal to annual expenses) then it would make sense to split it among different currencies and also different types of assets as well (deposit/stocks/precious metals/bonds). The rate of rouble may go up and down, but you also have to keep in mind that future events such as fluctuating oil price may risk a much deeper crisis than now, and you can look to experiences of the 1998 crisis as an example of what may happen if the situation continues to deteriorate.