The Risk that Often Isn't Risky

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Thursday 2 December 2004

Investing in offshore shares is riskier than investing in New Zealand shares, because of the foreign exchange risk, right? Not necessarily. For many people saving for retirement, it's actually riskier not to invest offshore.

By The Landlord

Let's start with why an international share investment is sometimes risky. If you invest in offshore shares or an international share fund, and then the value of the Kiwi dollar rises against the currencies in which you're invested, when you finally bring your money back home you will receive less than if the dollar hadn't moved.

The reverse is also true, of course. If the Kiwi falls, you will bring back more. But, given that it's impossible to forecast what the Kiwi will do - and good economists admit that - a lot of investors are reluctant to take foreign exchange risk.

For many people, though, that's only half the picture.

If you're saving for retirement, consider what you will spend your money on after you retire. If, like many New Zealanders, you will live in a mortgage-free home, your accommodation costs will be quite low. You'll need to buy food, of course, and many services, including health and entertainment.

Beyond that, though, you'll probably spend quite a lot on imported goods, including cars, electronic equipment, music, books, clothes and so on. All going well, you're quite likely to also spend a fair bit on overseas travel.

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