2026-02-21

How to Build a Multi-Currency Investment Portfolio

Most investment advice assumes you operate in a single currency. Build a diversified portfolio of stocks and bonds, rebalance annually, and let compound returns do the work. That advice is correct as far as it goes, but it ignores an entire dimension of portfolio construction: currency.

If you are a digital nomad earning in one currency, spending in another, and investing across multiple markets, currency is not a side effect of your portfolio. It is a structural component. The currencies you hold, the markets you invest in, and whether you hedge your FX exposure can have as much impact on your returns as your asset allocation.

This guide covers how to think about currency in portfolio construction, how to choose which currencies to hold, and how to balance currency risk against return potential.

Why Currency Matters in Portfolio Construction

A US investor who buys the S&P 500 has no currency risk. Their income, expenses, and investments are all in USD. The only variable is the stock market.

Now consider a British expat living in Thailand, earning in USD from remote work, spending in THB, with a SIPP in GBP and a brokerage account holding US stocks. This person has exposure to three currencies — and changes in any pair (USD/THB, GBP/USD, GBP/THB) affect their real financial position.

Currency exposure is not inherently good or bad. It is a factor that needs to be managed deliberately, not ignored. The Bank for International Settlements (BIS) reports daily FX turnover of over USD 7.5 trillion, making currency the largest and most liquid market in the world. Movements in this market affect every cross-border investor, whether they are aware of it or not. The BIS publishes triennial survey data on FX market activity at bis.org/statistics/rpfx22.htm.

The Three Types of Currency Exposure

Before building a multi-currency portfolio, understand the three ways currency shows up in your financial life.

1. Income Currency

The currency you earn in. For remote workers, this might be USD (most common for international freelancers), EUR, or GBP. Some people earn in multiple currencies if they have clients in different countries.

2. Spending Currency

The currency of your daily expenses. If you live in Mexico, this is MXN. If you live in Portugal, this is EUR. Digital nomads who move frequently may have their spending split across multiple currencies, but at any given time, one currency dominates.

3. Investment Currency

The currencies your portfolio is denominated in. A US-listed ETF like VTI is denominated in USD. An Irish-domiciled ETF like VWCE is denominated in EUR. Even within a single brokerage account, you may hold positions in multiple currencies.

The interaction between these three types is what creates your overall currency risk profile. An American in Colombia earning USD, spending COP, and investing in USD has a single currency risk: USD/COP for living expenses. A German in Japan earning EUR, spending JPY, and investing in USD has three-way currency risk.

Principles of Multi-Currency Portfolio Construction

Principle 1: Match Your Biggest Future Liability

The single most important currency allocation decision is matching your investments to your future spending needs. If you know you will retire in the United Kingdom and will need GBP for the rest of your life, having a significant GBP allocation in your portfolio reduces the risk that unfavorable FX rates erode your purchasing power in retirement.

This is called “liability matching” and it is the foundation of institutional portfolio management. Pension funds denominate their assets to match their future obligations. Individual investors should do the same, at least directionally.

If you have no idea where you will settle, this is harder. In that case, diversification across major currencies (USD, EUR, GBP, CHF, JPY) serves as a hedge against uncertainty.

Principle 2: Do Not Over-Concentrate

Holding 100% of your portfolio in a single currency means your global purchasing power is entirely dependent on one country’s central bank. If that central bank raises rates aggressively, your currency strengthens (good for imports, bad for export-oriented investments). If it prints money, your currency weakens (bad for purchasing power abroad).

Diversification across currencies reduces this concentration risk, just as diversification across stocks reduces single-company risk.

A reasonable starting point for a globally mobile investor:

These are guidelines, not rules. Your actual allocation should reflect where you earn, spend, and plan to live.

Principle 3: Understand What You Already Own

Before intentionally adding currency exposure, audit what you already have. You may have more currency diversification — or concentration — than you realize.

A US-listed international ETF like VXUS is denominated in USD, but the underlying holdings are in dozens of currencies (EUR, JPY, GBP, AUD, etc.). When you buy VXUS, you have indirect exposure to all those currencies. If the yen strengthens against the dollar, VXUS benefits (in USD terms) even though you bought it in dollars.

Conversely, a globally diversified investor living in Singapore who holds US stocks, European ETFs, and a local CPF account might have more USD exposure than they realize once they account for the underlying holdings.

FlashFi shows your currency allocation across your entire portfolio, making it easy to see exactly how much exposure you have to each currency. See How to Track Investments in Multiple Currencies for setting up proper consolidated tracking.

Principle 4: Consider Correlation

Currencies do not move independently. Some pairs are closely correlated (EUR and CHF tend to move together). Others are negatively correlated in certain environments (USD and gold-linked currencies sometimes diverge during risk-off events).

True diversification means holding currencies that do not all move in the same direction at the same time. Holding EUR, CHF, and DKK gives you minimal diversification because the Danish krone is pegged to the euro and the Swiss franc has historically tracked EUR closely.

Better diversification comes from mixing developed market currencies with different economic drivers: USD (US monetary policy), EUR (ECB policy), JPY (Bank of Japan policy, historically a safe haven), AUD (commodity-linked), and CHF (safe haven).

Hedged vs. Unhedged Exposure

When you invest in a foreign market, you can either accept the currency exposure that comes with it (unhedged) or eliminate it using a currency-hedged fund (hedged).

Unhedged

You buy a European stock or ETF denominated in EUR. Your return has two components:

  1. The performance of the underlying investment in EUR
  2. The change in EUR vs. your home currency

If you are a USD investor and both the stock and the EUR go up, you benefit twice. If the stock goes up but the EUR falls, your gains are reduced. For a detailed explanation of how this math works, see How Currency Exchange Rates Affect Your Investment Returns.

When unhedged makes sense: - You want deliberate exposure to the foreign currency (it is part of your diversification strategy) - Your investment horizon is long (10+ years) — over long periods, currency effects tend to mean-revert - The cost of hedging is high (common for emerging market currencies)

Hedged

Currency-hedged ETFs use forward contracts to neutralize the FX impact. A currency-hedged European equity ETF held by a USD investor will return approximately the local EUR performance of the underlying stocks, with the EUR/USD effect removed.

Examples: - HEDJ (WisdomTree Europe Hedged Equity Fund) — EUR exposure hedged to USD - DXJ (WisdomTree Japan Hedged Equity Fund) — JPY exposure hedged to USD - DBEF (Xtrackers MSCI EAFE Hedged Equity ETF) — broad international, hedged to USD

When hedged makes sense: - You want foreign equity exposure without taking a currency bet - The foreign currency is expected to weaken (and you want to avoid the drag) - Your investment horizon is short to medium (1-5 years) — FX volatility matters more over shorter periods

When hedged does not make sense: - You actually want the currency exposure as part of your diversification - The hedging cost is high (some emerging market hedges cost 3-5% per year in carry) - You are investing for 10+ years and can tolerate short-term FX volatility

The Cost of Hedging

Currency hedging is not free. The cost is driven by the interest rate differential between the two currencies. If US rates are 5% and Japanese rates are 0.5%, hedging JPY exposure for a USD investor costs approximately 4.5% per year. This is a significant drag on returns.

For major currency pairs where interest rates are similar (USD/EUR, USD/GBP), hedging costs are typically 1-2% per year. For pairs with large interest rate differentials (USD/JPY, USD/CHF during zero-rate periods), costs can be much higher.

Practical Allocation Strategies

Strategy 1: The Base-Currency Anchor

Hold 60-70% of your portfolio in your home currency (or the currency of your largest future obligations), with the rest spread across 2-3 other major currencies. This is the simplest approach and works well for people with a clear home base.

Example for a USD-based investor: - 65% US equities (VTI) — USD - 15% International developed (VEA, unhedged) — EUR, JPY, GBP, AUD mix - 10% Emerging markets (VWO, unhedged) — various EM currencies - 10% Bonds (BND) — USD

Currency result: ~75% USD, ~10% EUR, ~5% JPY, ~10% other

Strategy 2: The Spending-Match Approach

Allocate to match your spending and liability profile. If you live in Spain and earn in USD, allocate enough to EUR to cover your anticipated expenses for the next 3-5 years.

Example for a USD earner living in the eurozone: - 45% US equities (VTI) — USD - 25% European equities (VGK or individual European stocks) — EUR - 15% International developed (VEA, unhedged) — mixed - 10% Eurozone bonds or savings — EUR - 5% Emerging markets (VWO) — various

Currency result: ~50% USD, ~35% EUR, ~15% other

This approach ensures that a sudden EUR/USD move does not immediately threaten your ability to cover rent and living costs.

Strategy 3: The Global Neutral

Weight your currency allocation to approximate the global economy’s GDP or market cap weighting. This is the “I do not know where I will end up” approach, and it provides maximum diversification.

Based on approximate global equity market capitalization: - 45% USD - 15% EUR - 10% JPY - 8% GBP - 5% CNY - 5% CHF - 12% other developed + emerging

In practice, buying a global ETF like VT (Vanguard Total World Stock ETF) achieves something close to this, since its weights reflect market capitalization.

Strategy 4: The Satellite Approach

Hold a core portfolio in your home currency (70-80%), with deliberate “satellite” positions in currencies you have specific conviction about or exposure to.

Example for an Australian living in Georgia: - 50% Australian equities (ASX-listed ETFs) — AUD - 20% US equities (US-listed ETFs) — USD - 15% International developed (unhedged) — mixed - 10% GEL savings account (local expenses buffer) — GEL - 5% Emerging markets — various

Currency result: ~50% AUD, ~25% USD, ~15% mixed, ~10% GEL

Rebalancing a Multi-Currency Portfolio

Currency allocation drifts over time — not only because asset prices change, but because exchange rates change. If the USD strengthens 10% against the EUR, your USD allocation grows as a percentage of your total even if you made no trades.

When to rebalance: When any currency allocation drifts more than 5-10 percentage points from your target. Annual rebalancing is sufficient for most investors; more frequent rebalancing increases transaction costs and FX conversion fees.

How to rebalance: Preferably by directing new investments toward underweight currencies rather than selling overweight positions. This avoids triggering capital gains and paying conversion spreads.

Tax considerations: In some jurisdictions, selling to rebalance triggers capital gains. If you are a US person, be aware of the wash sale rules if you sell at a loss and repurchase similar assets. For expats in countries like the UAE or Georgia with no capital gains tax, rebalancing is friction-free.

Monitoring Your Currency Exposure

The biggest practical challenge in multi-currency portfolio management is seeing where you stand. If you have three brokerage accounts in two currencies, a retirement account, two bank accounts, and some crypto, calculating your currency breakdown manually is tedious.

You need a tool that:

FlashFi does all of this. Add your holdings across any market and currency, and the dashboard shows your currency allocation alongside your asset allocation — both updated in real-time.

For a comparison of multi-currency tracking tools, see our comparisons against Kubera, Sharesight, and Exirio.

Start Building Your Multi-Currency Portfolio

Currency is not a complication to avoid. It is a dimension of your portfolio to manage deliberately. Whether you anchor to a single currency and add satellites, match your spending profile, or go fully global-neutral, the key is having a clear allocation target and the tools to monitor it.

Track your multi-currency portfolio with FlashFi and see your full currency exposure in a single dashboard.

By David Brougham