Foreign exchange pit fall


(Jozef) #1

Is buying U.S shares a really bad idea with the current value of the pound vs dollar?, I’m looking to buy my first lot of stocks and see Facebook currently as a good value stock to dump a decent amount of money into and leave for the next 15 years ( will be for my son when he turns 18).
My biggest fear is making a handsome profit only to have it removed by a stronger pound.
Will buying through Freetrade shelter is from this in anyway?
Look forward to any helpful info!


(Big Boss) #2

Depends on your time horizon mate. Long term time horizon of 5 to 10 years (in your case 15 years), you don’t have to worry about it at all.


(R) #3

It’s a great point. Definitely worth considering. The reversion of the exchange rate thesis does hold some merit, but how long will you wait? Especially when you consider that GBPUSD is among historical lows. An option is then to fully hedge your USD risk especially if you want to only be exposed to the stock price and not the currency fluctuations. How? CFDs, options, perhaps some other instruments. But the costs may be high for these. Institutions will just take out FX forward contracts to hedge.


(R) #4

I’ll also add that it is generally easier to get this done when it comes to major indices since many of these have investable hedged versions of the ETFs. Would love to see those make a debut on FreeTrade at some point.


(Rob N) #5

If the UK economy and Pound is to recover (in general) then you’d get upside by holding a FTSE 250 ETF as part of your portfolio. That could be a more simple way to balance, albeit less precise… :thinking:


(Harry) #6

I would just not worry about currency fluctuations. You can’t predict it, especially over such a long time frame, better to just leave it unhedged in my opinion.


(Jozef) #7

Firstly thanks very much for the great information, in late December I decided to throw caution to the wind and picked up 100 shares in Facebook.
They seem to be doing quite well as of late and will hopefully carry on doing so for years to come!.
Sadly it was just before freetrade allowed US stocks so I ended up with a different broker, since the change though I will certainly be using freetrade for future efforts


#8

The long term trend for the £ against the $ is down and, with Brexit, weakness is likely to remain for the foreseeable future (but make of this what you will):

In terms of a shelter, given these shares are intended for your child, consider a Junior ISA:

Finally, given you’ve placed a big bet on Facebook’s future, it may be worth seeking professional financial advice regarding curating a portfolio that satisfies your specific need to leave something of value to your son (at the very least diversify :egg: :basket: which I’m sure you’ve already thought to do with your 2nd, 3rd and so on investments anyway)


(Jozef) #9

Fantastic info thank you, I must admit this is more of a side venture but one that fascinates me, I will certainly be diversifying over the coming years, bricks and mortar are where I am focusing the majority of my efforts and see this as something I can gradually hone my skills in As time goes on.