Hedging to GBP when uncertain about retirement country

ruggiero

Hi,
I have been following Tim Hale's Smarter Investing approach for a while now.

He, as other authors, recommends to hedge (read: buy funds or ETFs hedged back to GBP) your defensive assets to your home currency. It makes perfectly sense because he assumes that you will be spending your money where you live.

However I am not a UK citizen and (regardless of brexit) I am not sure where I will be retiring. It could be Europe, UK or some place warmer :-)

My conclusion is that hedging does not really make sense for me. Of course, when I will be approaching retirement (I am 46 at the moment) I will be re-assessing.

Do you think this is a sensible approach? I have been reading other posts on this forum (and others) and they seem to support it.

Thanks!

AnotherJoe

What are "defensive assets"? Are these different to your general assets? (genuine question)

I am sure this guy is a genius so I admit i could be wrong, but to me it makes no sense to hedge anything you hold for the long term back to your home currency (or any other currency) , essentially because best case in the long term the cost of doing so must be the same as the gain or loss you'd make, its like trying to hold back the tide to think that if the Pound to Dollar is say 0.8 now and its 5 in 30 years time, you can avoid that. The cost to do that would be huge.

And thats best case, the downsides are much worse, in that you might be preventing yourself being better off because you are paying money to get a worse exchange rate, and if the value see saws between the start and end so you end up back where you were, then you've paid all those hedging costs for nothing.

Fair enough if you have say £100k and want to buy a house in the US in a year you can hedge that by changing it now. I dont believe you could, at any reasonable cost, hedge against what the pound would be in 20 years time.
I think in your case the best hedging you could do is to hold global assets so that your investment essentially stays the same "global" value (ignoring gains and losses) over time.

ruggiero

Thanks AnotherJoe,

with defensive assets I mean bonds.

My portfolio at the moment is 75% equities and 25% bonds. What you say makes perfectly sense to me.