Traveling Overseas? Profit From the Exchange Rate

by Jean Chatzky
Photograph: Illustration: Chad Hagen

“Leather,” one person after another whispered in my ear when I mentioned an upcoming trip to Buenos ­Aires—as if they were in The Graduate pushing Benjamin Braddock toward plastics. And they were right! I picked up two gorgeous bags and a pair of shoes for the equivalent of $100. My husband got three handsome belts for $15 each. It was the epitome of smart shopping: Not only was inexpensive Argentine leather working in our favor, but so was cheap Argentine currency.

That our economy is becoming more global by the day is not debatable. The question is, In how many different ways can you profit from this situation? As it turns out: many. You can (and should) invest in international stocks; you can travel to countries where the dollar is strong and local goods are cheap; you can even buy real estate abroad. Whatever your plans, here’s your cheat sheet.
 

If you’re investing

“Most investors are not diversified enough internationally, particularly in growing areas like China,” says Burton Malkiel, an economist at Princeton and author of A Random Walk Down Wall Street. To reduce overall risk, at least 20 percent of the portfolio of a woman in her forties should be held outside the U.S. That can translate into more money: If you’d invested $10,000 in the S&P 500 a decade ago, it would be worth about $9,800 today, according to Ibbotson Associates. But if you’d invested the same $10,000 abroad (half in emerging markets, half in developed markets), it would be worth $19,400. And though some countries—­Greece, Spain—have taken their lumps of late, others, including India, Brazil and China, are expected to outdo the slow 2 to 3 percent annual growth rate analysts are expecting from the U.S. in the near future.

When you’re deciding what to invest in, think big funds with low fees, encompassing many countries. For example, consider international Exchange Traded Funds (ETFs), which have expenses about 60 percent lower than those of managed mutual funds. ETFs operate like index funds in that they invest in a set pool of stocks or bonds (or both) but trade like stocks. “The nice thing about ETFs is that they’re pretty easy to trade and they give you broad exposure to many different countries,” says Morningstar??.com analyst Michael Rawson. A couple of possibilities for stocks: the Vanguard FTSE All-World ex-U.S. and the iShares MSCI EAFE Small Cap. And for bonds: SPDR Barclays Capital International Treasury Bond and the SPDR DB International Government Inflation-Protected Bond.
 

If you’re traveling

You walk off the plane at Paris’s Charles de Gaulle airport, turn a few corners—and you hit one currency-­exchange kiosk after another. The fact that they’re so convenient should be a warning sign. These booths, like the money-changing shops on the main thoroughfares in Barcelona, Milan and most other major cities, are typically very expensive. At a storefront currency operation, rates will range from 5 percent to 10 percent over the wholesale interbank exchange rate, says Edward Hasbrouck, author of The Practical Nomad. Converting $500 this way could cost you $25 to $50. Instead, exchange a few hundred dollars at your American bank before you travel so that you can deal with transportation from the airport. Track exchange rates at such sites as x-rates?.com and xe.com. As for traveler’s checks, the old standby, they’re no longer popular, for several reasons: Their big selling point—they can be replaced if lost or stolen—is also true of credit cards, which are often cheaper to use. Also, it still costs money to exchange traveler’s checks for local currency, and there may be a fee to purchase them as well.

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