Investing in the UK and currency risk

Issun

Hello all,

I am new to this forum and to investing, have about 5k to start with, and the prospective of adding at least £700 per month to that.
I've been reading JL Collins' Stock Series and a Random Walk Down Wall Street, and I've been leaning towards putting my money into Vanguards' 80% Lifestrategy Fund, via an ISA (probably through Cavendish as a provider).

The thing I've been unsure about is how I should take into consideration currency risk.
Some 25% of the Vanguard's fund is allocated into UK equity/bond and some 15% into a hedged Global Bond fund, however the bulk remains invested in foreign countries.
As a EU citizen living in London, I'm really not quite sure where I'll end up being in the future, be it for Brexit or career reasons. However, I don't see myself leaving the UK in the short term.
So I guess my question is whether you guys think I should perhaps invest some money in a UK-only index fund as well, alongside the Vanguard Lifetime fund.

Cheers!

greenglide

To get your UK holdings above 25%? Why would you wish to do that?

The UK economy is far less than 25% of the world's economy, I can see no reason to have above 25% even if it were not for the madness called BREXIT. Since Mrs May and BREXIT will make us all poorer I would keep UK holdings way below 25%.

Plus

One thing to understand is that when you invest, you've already changed into a different asset class. You might have a list like:

GBP cash
EUR cash
USD cash
GBP bonds
EUR bonds
UK shares
French shares
US shares

If you use GBP cash to buy a fund that invests in UK shares what you now hold are UK shares. It doesn't matter what currency they happen to be in, you're in something different from cash. It won't necessarily follow the exchange rate. For instance, if you buy a FTSE100 tracker it's full of companies that get income that is priced in dollars (oil, mining, etc). It's a separate asset class. It's won't go up and down like GBP cash nor exactly like USD cash - though it'll likely follow USD to some degree.

It doesn't matter if the investment you buy happens to be denominated in GBP or EUR or USD, it's what's inside that matters.

So the next question is: where do you think is better to invest? Or, where should you go to get coverage of different markets to spread your risk?

At the end of the day, unless there's a complete currency collapse, currencies tend to move up and down by only a small margin. It doesn't take many years of investing to grow more than that, at which point any currency variations are just noise you can ignore.

Issun

I see. Makes sense!
Thanks a lot for the insight there, very helpful;)

Apodemus

In some ways, as a EU citizen in UK, you are your own hedge against the currency risk.

If the UK economy does well and you remain in U.K., your employment income and living standards should reflect this and your investment returns will matter slightly less. Of course, in this scenario while hindsight might tell you that it would be better to have been invested in the U.K. economy rather than overseas, you have no way of knowing that at the outset.

If, however, the U.K. economy underperforms after Brexit, you will want to take your skills and sell them in a better market, so you are likely to leave. At that point, your investment returns matter a lot more and you don't want to find that all your investments have underperformed along with the UK economy.

So, for me, the choice is quite clear, the downside risk to you of having both your investments and your employment in U.K. is greater than the alternative of investing overseas while remaining employed in U.K.