Mythbusters: VT vs VWRL

What would you want? You’d want the same %age increase regardless of currency? That’s not possible (otherwise everyone would be trying to get the gain from some inflating economy and get free money, compounding the value increase and the inflation).

Instead of VT, imagine you have a magic apple tree, which produces 10 apples per year. After 10y you’ll have had 100 apples, it doesn’t matter in which currency you’re selling those (CHF, EUR, etc.), it’s still 100 apples.

So yes, on a depreciating currency you’ll get more USD for your 10 apples on the last year (because it depreciated), but you’re still selling 10 apples.

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My point is related to the final conversion. If I’ll buy VWRL in Eur (that I have already) I can avoid the risk of losing 20% or more, because I can spend Eur, while I cannot spend Usd.
I’m saying losing 20%, because I think that there is a recession ahead for US.

Well since VT has about 50% US stocks, your ETF share price will fall in that case, since those companies don’t magically earn € instead of $… The only thing that changes is your share currency, but the underlying holdings don’t change. It’s basically irrelevant, which currency an ETF has.

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VT & VWRL both reflect ‘the world market’, which already implies that you have a rather large number of businesses & markets with their various currencies reflected in the ETF value. Whether you express this value in USD or EUR doesn’t matter as much as you seem to think.

As an example, imagine a globally active company that lists its shares on the UK stock market. You buy the shares in GBP, and tomorrow GBP drops 20%. Since our imaginary company gets most of its profits from outside of the UK and therefore its intrinsic value didn’t change due to the GBP drop you would expect: The company share is +25% when measured in GBP.

In VT & VWRL you will have similar effects, currency fluctuations are factored into the valuation. Your real currency risk is only between selling ETF shares and converting it to CHF / EUR, a matter of minutes.

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Most of the very large US companies have their share of the global markets as well, think Apple, Amazon, etc… But let’s face it, if the US market seizes up you will see it most other markets as well. We’re too connected, at best it will be less bad.

I agree on the ETF part.
I’m trying to understand how to maximize the external layer, that I see like just FX:
Today I’ll convert 100 eur in 100 usd, tomorrow I’ll convert back and I get only 80 eur.

Yes and the EU ETF will only be worth 80€ in that case - since they both track the exact same holdings.
If you’d like to profit/exclude certain currencies you’d need to buy EUR companies which do most of their business inside the EUR area, that way you mitigate the currency risk of USD.EUR, but you lose diversification.

Buying a world ETF in EUR and one in USD however is a highly identical process, since they hold the same underlying assets.

Here is a fake ETF as an example about currency fluctuations

You could buy a EUR- or CHF-hedged ETF such as IWLE. However, I don’t recommend currency hedging of equity. It may reduce volatility but in the long term just increases costs.

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That’s the point, I have already cash in EUR that I don’t need to convert if I’ll buy VWRL, and when I’ll sell the shares, again I don’t need to convert eur to chf, because I can spend Eur, so I won’t have the problem of currency fluctuation.
Does it make sense?

No. Once you used your EUR to buy fund units, you have fund units. No exposure to any currency, but to fund value. You can even buy in one currency and sell in another. The ratio between prices in different currencies is just the current currency exchange rate.

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5 posts were split to a new topic: [COFFEE] Value unit

I’m not going to give up :smile:

I have 200 eur already (because I earn in eur as well)
1 VWRL = 100 eur
1 VT = 100 usd
100 usd = 100 eur

I buy 1 share of VWRL

I convert 100 eur in 100 usd
I buy 1 share of VT

After 10 years
1 VWRL = 200 eur
1 VT = 200 usd
100 usd = 50 eur

I sell 1 share of VWRL, I have in my pocket 200 eur (that I can spend).

I sell 1 share of VT, I get 200 usd
I convert 200 usd (because I cannot spend them) in eur and I get 100 eur

So this example is not going to be possible in real life? Because if usd loses 50% compare to eur I will get more than 200 usd when I sell the shares (inflation)?

Your example is not possible.

If in 10 years, one banana is 1$ and one banana is 1€, then 1$=1€…

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What about this?

After 10 years
100 usd = 50 eur
1 VWRL = 200 eur
1 VT = 400 usd

And this is due to ‘hypothetical’ US high inflation, so I will get more usd, because in the meantime they worth less?

…but you told us (more than once), you don’t plan on spending in this currency.

So what are you getting at? :wink:

Sorry I didn’t explain it correctly. It would be nice to discuss in person in front a beer :slight_smile:
I meant that when I sell the 1 VT, I will get more USD, due to inflation ( 100 usd = 50 eur) and when I’ll convert to eur, I will get the same amount in eur, compare to vwrl (200 eur), as everyone was pointing out previously (currency doesn’t matter)

Essentially yes, the differences will be very small. If you look at the top 5 companies within the ETFs, they are the same. Therefore the value of the ‚thing‘ you possess is the same. You can choose to express this value in USD or EUR, which are connected through the FX rate of the day.

Actual differences will come from the differences in ETF composition, fees or taxing regimes discussed in this thread. You might pick up a little from ETF to index tracking differences. The total will be small.

There is a better argument to diversify across different jurisdictions due to political stability, bankruptcy protection, guaranteed access to funds on at least one of them, etc…

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Very similar funds, same TER, share classes in different currencies:

5 years ago, in March 2017:
1 EUR = 1.0687 USD according to Yahoo Finance (31.03.2017). I have 20,000 EUR to invest.
I invest 10,000 EUR in the Fund denominated in EUR.
I invest 10,687 USD (10K EUR, assuming 0 forex fees) in the fund denominated in USD.

In March 2022:
1 USD = 0.8959 EUR (Yahoo Finance, 31.03.2022).
My investment in the EUR fund is worth 17,177.65 EUR.
My investment in the USD fund is worth 19,097.53 USD or 17,109.48 EUR.

The difference is 0.4% over 5 years, or 0.09% CAGR. As far as I know, it could have gone either way. I would not worry too much about it.

Currency hedged funds are a different matter but this is not what we’re talking of here and I wouldn’t hedge an equity fund anyway.

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7 posts were split to a new topic: Buying/selling at different exchanges