You may earn interest and dividends from
your international investments and realize capital gains. But
that doesn’t necessarily mean that you’ll have a positive
total
return,
or that your return will be as strong as the return
of an investor making the same investment with yen, pounds, or
euros.
The reason is that most currencies don’t
have a fixed value — that’s why currencies are said
to float against each other. Sometimes the dollar is stronger
in relation to other currencies, and sometimes it’s weaker.
When the dollar is strong, it will cost you fewer dollars to get
a specific amount of another currency than it would when the dollar
loses value.
For example, suppose that $1 is worth 1 euro.
If the dollar increased in value, you might be able to get 1 euro
for only 90 cents. That’s good if you’re shopping in
Europe. But if you had bought a stock priced in euros when the
two currencies had equal value, and the dollar grew stronger,
the stock would be worth less to you than to someone who invested
using euros. Using this example, a capital gain of 1,000 euros
would be worth just $900.
On the other hand, if the dollar loses ground
against various currencies, you may make money on your existing
investments that are based on those currencies. But it will cost
more to purchase additional amounts of these investments.
