As it has been so frequently noted in the financial press, last year the U.S. dollar appreciated significantly against most foreign currencies, including the widely quoted benchmark euro.
For investors with a portion of their portfolio in unhedged international stocks, this caused some short-term pain.
For illustrative purposes, let’s expand the discussion beyond the euro to examine a broader basket of foreign currencies against which to assess the U.S. dollar’s movement relative to foreign currencies. Going back to 1998 with MSCI data, you can observe wide swings–in both directions–on an annual basis. However, the average return was close to zero. That means, over the long run, currency risk typically washes out, making long-term returns the same whether you hedge them or not.
Read the rest of the article on The Wall Street Journal.