For individuals who hold assets, earn income, or make investments across different countries, exchange rate volatility can significantly impact the value of those assets and the financial planning advice they are given, explains Chris Ball, CEO at international financial advisory and wealth management firm Hoxton Wealth.
We live in a time of immense economic and market uncertainty where exchange rate fluctuations can significantly impact individuals operating or with financial interests in multiple countries. Multinational clients face challenges in accurately forecasting cash flows and investment performance, whilst a weakened home currency can erode the value of foreign investments when converted back. When assets are spread internationally, currency risks can also affect retirement planning, estate transfers, and taxation.
As a result, financial advisers and wealth managers need to consider hedging strategies to protect against currency risk, constantly monitoring global economic indicators and market changes. Long-term planning must also account for inflation and currency devaluation in relevant jurisdictions.
But such volatility has implications for many aspects of financial planning. In terms of investment strategy, currency volatility affects returns on foreign investments. This may require hedging to manage exchange rate risk or shifting assets between regions based on currency trends to optimise returns or reduce risk.
It also impacts income, pensions, and asset values for individuals living or working abroad. Planning needs to account for potential swings in net worth or spending power, particularly where clients have future liabilities denominated in different currencies—such as school fees, retirement expenses, or property purchases. People retiring abroad could face uncertainty in how far their pensions or investments will stretch, depending on exchange rates. Even regular pension drawdowns can fluctuate in value once currency movements are factored in, impacting day-to-day financial security. With currency moves potentially affecting the timing and location of asset liquidation, there may be tax implications in multiple jurisdictions.
Similarly, in terms of estate planning, inheritance and gifts across countries will fluctuate in real value due to exchange rate changes. Currency mismatches between trust assets and beneficiaries’ needs can complicate distribution and planning. Wealth transfers structured today may not maintain the same relative value for beneficiaries if significant currency shifts occur in the interim. Forward planning, and regular review of asset allocations across different currencies, becomes critical to maintaining intended outcomes.
Managing cash flow timing is another area that becomes more complex in volatile currency environments. For example, clients with liquidity needs tied to certain currencies may benefit from setting aside dedicated currency reserves to avoid forced conversions during periods of unfavourable exchange rates. Similarly, investors should think carefully about the currencies of their future expenses, not just the locations of their current assets—and factor this into their portfolio construction.
Take, for example, a US-based investor with assets in the UK. Let’s say they have a diversified portfolio including real estate in London and UK-based equities. They plan to send their child to university in the UK in three years, but their investment income and primary wealth are in US dollars.
Investment returns will be affected by exchange rate movements. If Sterling strengthens from £1 = $1.20 to £1 = $1.35, the investor’s UK assets will then be worth more in USD terms. So, a property in London worth £500,000 would increase in USD value from $600,000 to $675,000 purely from the foreign exchange movement. But if Sterling weakens due to economic changes, the same property might only be worth $550,000, shrinking the individual’s perceived wealth in the US. This could also reduce retirement or education fund planning flexibility if funds were earmarked for USD expenses. If the investor plans to sell the London property in five years, then a future weak pound could reduce total return when converting sale proceeds to US dollars. Hedging or timing the sale to coincide with a favourable exchange rate could preserve capital.
If that same individual chooses to gift assets or inherit wealth across the UK–US border, foreign exchange fluctuations can alter tax liabilities. A gift valued at £100,000 may cross a US gift tax threshold depending on the USD conversion rate at any given time. Estate plans must therefore account not only for tax rules but also for potential value swings resulting from currency moves.
In short, currency volatility alters the real value of foreign assets and liabilities, impacts future cash flow needs for education, retirement, and inheritance, and adds complexity to cross-border transactions, tax reporting, and estate planning. While it makes international financial planning more dynamic, it also demands a far more proactive, globally aware advisory approach.
At Hoxton Wealth, we believe that anticipating and planning for these cross-currency dynamics is not just a value-add—it’s an essential part of protecting and building wealth for internationally mobile individuals and families. By helping clients navigate both investment markets and currency markets thoughtfully, we can provide greater financial resilience in an increasingly uncertain world.
