Sanrith Descartes
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Investing General Discussion
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Jysin
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Nothing to see here. Healthy consumer.
Nothing to see here. Healthy consumer.
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Big Phoenix
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Lambourne
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What's changed is that the dollar has lost substantial value YTD, which is why this Euro-denominated ETF is still 12% off the February high. If you're in the US you might be back at the same point nominally but much of the recovery may have been from inflation. Fed still has some of the highest rates which I think signals that inflation isn't under control.
A weaker dollar is going to drive up costs for importers even without a tariff in place so those effects are going to show up at some point. I think the Trump/Musk spat has made it obvious that the deficit isn't going to be brought under control in a major way so I wouldn't be surprised to see the dollar devaluate further. EUR/USD is around 1.13 now, it ballooned to over 1.50 during the GFC.
Interest rate graph from here:
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Asshat Foler
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Lambourne
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All fiat currencies lose value, some just lose value quicker than others. My take is that the dollar is losing value more quickly than the Euro currently.
Dollar lost 10% value since February so if you (as an American) had bought a Euro stock then it would gone up 10% in dollar denominated value even if the stock price in Euros didn't change at all. European stocks have done better than the S&P this year, probably for that reason. Diversifying worldwide can offset currency risks (including those in your home currency)
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Asshat Foler
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Interesting. So these ETFs are basically buying the same sp500 index but in euro denominations?
Lambourne
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Any time you hold a stock that is traded at a stock exchange in another country (directly or through a fund like an ETF) there is an exchange rate risk. If the foreign currency loses value relative to your own, you lose money. If the reverse happens, free gains.
The fund above is a European domiciled fund that you drop your Euros in and then they buy S&P500 stocks with it. Since all of the S&P 500 stocks are traded in the US at dollar denominated stock exchanges, there is an exchange rate risk for European investors. Dollar has lost value compared to Euro, so European investors lost more money compared to where we started earlier this year. Last year the reverse happened and we got free gains.
If you're in the US and you expect the dollar to fall relative to other currencies, buying foreign stocks can be a way to shield yourself or even profit from that. For example, ACWX is an ETF that you can buy in the US and it holds non-US stocks from all over the world. You can see it has gained substantially from earlier this year, partly because of the weakening dollar.
Blazin
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Trying to balance the loss of purchasing power across more depreciating fiat currencies isn't something I would find to be of value. For some foreign investors might want to do so, like a member of the 51st state may want to avoid holding the S&P in their maple syrup dollars.Thanks. This is pretty interesting stuff. Would be interested to hearBlazin thoughts on if this would ever be a worthwhile hedge in a long term portfolio.
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Lambourne
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I fully get that it's probably not something that active traders like you get involved in. You're a very different type of investor than I am.
For buy-and-hold, broad fund investors like myself it's quite a big concern. 10% currency devaluation can wipe out an entire year's returns. Diversifying across the world can lower that risk (and the return)
I don't understand your Maple Syrup dollar point. If Canadian dollars are going to tank relative to the USD, holding US stocks would protect Canadian investors from that devaluation.
Blazin
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You're being specific where I'm being general. If Canadian dollars are going to tank relative to the USD currency hedging might be of value to them...
We agree.
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Intrinsic
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If there's an appropriate post that covers this, feel free to point me there please. Unlike most threads on this site, this is one that I haven't read almost every post in and followed along it feels like.
I'm playing with structuring our Money Market account so that we have access to some cash when needed, it makes more than a savings account but offers moderate growth so that in our 5-year plan we can look at a new home. This doesn't cross over with our long-term retirement accounts that we're also contributing to (wife's 401k, rollover IRAs from other jobs, my SEP, etc).
I've spent the last couple of months reading and trying to see what would meet our 5-year time frame. Broadly that is to have enough split between the short-term savings and equity that we can pull from our existing home. At which time we'd determine how much of that we'd want to put down towards the home purchase and/or if we want to put down X amount to not completely drain our cash. It seems hard to plan exactly because we don't know future interest rates nor the exact cost of the property we want. Maybe we keep our current home and rent it... not sure. We could pay it off in 5 years if we wanted but that hasn't been a priority since our interest rate on the home loan is like 3%.
Anyways, that's just for context and what is floating in my head and maybe the specific numbers aren't relevant to the overall strategy and approach, I don't know. Just throwing things down on paper.
Idea so far:
Realistically I could just stick it all in SWVXX or SCHO but I want to try to balance some risk for additional growth but not leave us broke in 5-years if something goes tits up.
Sorry if that's a lot of jibberish, maybe my approach is way off base. Gone through different ChatGPT scenarios ad nauseum and at this point think I'm talking myself in circles about how to approach it all.
I'm playing with structuring our Money Market account so that we have access to some cash when needed, it makes more than a savings account but offers moderate growth so that in our 5-year plan we can look at a new home. This doesn't cross over with our long-term retirement accounts that we're also contributing to (wife's 401k, rollover IRAs from other jobs, my SEP, etc).
I've spent the last couple of months reading and trying to see what would meet our 5-year time frame. Broadly that is to have enough split between the short-term savings and equity that we can pull from our existing home. At which time we'd determine how much of that we'd want to put down towards the home purchase and/or if we want to put down X amount to not completely drain our cash. It seems hard to plan exactly because we don't know future interest rates nor the exact cost of the property we want. Maybe we keep our current home and rent it... not sure. We could pay it off in 5 years if we wanted but that hasn't been a priority since our interest rate on the home loan is like 3%.
Anyways, that's just for context and what is floating in my head and maybe the specific numbers aren't relevant to the overall strategy and approach, I don't know. Just throwing things down on paper.
Idea so far:
Symbol | % Breakdown | total return (reinvest + price) | Notes |
SWVXX | ~ 3 months of expenses | 4-5% | Ultra-short term, cash on hand buffer |
SCHD | 50% | 8-10% | Seems to be recommended in various places and have tax advantages of being qualified dividends |
DON | 20% | 8-10% | Mid-cap, qualified dividends |
DES | 15% | 8-10% | Small-cap, qualified dividends |
SCHY | 15% | 8-10% | International exposure |
Realistically I could just stick it all in SWVXX or SCHO but I want to try to balance some risk for additional growth but not leave us broke in 5-years if something goes tits up.
Sorry if that's a lot of jibberish, maybe my approach is way off base. Gone through different ChatGPT scenarios ad nauseum and at this point think I'm talking myself in circles about how to approach it all.
Kithani
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Intrinsic
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Elaborate? You mean vs. just dumping it all in like SWVXX or similar?
I guess if I'm using those 8-10% projection as gross returns and then factoring in the different tax implications the effective yield would be in the 5% - 7% range? The SCHO is tax exempt from state income tax but still hit by normal federal tax rates, so it would go to 3 - 4%?
But that also doesn't factor in the risk of the market tanking to make an extra 2 - 3% over 5 years versus just a "fixed" return?
Asshat Foler
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Intrinsic
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Since we’re at Schwab we can’t do SPAXX, but after doing some reading it looks like SNAXX might be an option instead of SWVXX.
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