You've set your financial goals and created an investment strategy. If all goes according to plan in the next five years, you should be looking at the very promising beginnings of a retirement fund, or putting down a deposit on your first property. Whatever your investment goals, if they don't factor in forex, there's a chance you’ll miss your target. So let’s get you started…

Preserving your capital

In difficult economic times, many investors focus on preserving their capital – that is, they focus on not losing the money they have, rather than on chasing significant returns. As a South African investor, keeping your portfolio mainly in rands during the current economic climate will likely result in a significant loss of value over time (we’ll explain why in a minute).

Why consider forex?

Of course, not many investors wake up in the morning planning to buy foreign currency (unless they are forex traders – a topic for another day). That's because holding currency is not considered an investment. It doesn't offer growth or pay dividends. In fact, holding cash for a long period of time can lead to a decrease in purchasing power because of inflation.

For instance, since 1994, the South African rand has declined by 82% relative to the US dollar. That’s because over the past 29 years our economy has been hit with government corruption, high levels of inequality and a high unemployment rate, particularly among the youth.

So let's say you have your eyes on Apple (AAPL) shares. You're waiting for the price to drop to a certain level so you can scoop up a good deal. If your portfolio contains only rands, you'll first have to convert your rands into dollars before you can invest. Depending on the rand fluctuation, you might end up paying more for your shares.

Dealing with socio-economic factors

Many socio-economic and political factors, plenty of which are beyond your control, will impact the performance of your investment portfolio. And they will be impossible to predict. You don't have to look too far back in time to see how Covid slashed the price of equities globally. In South Africa's case, this year alone, the rand continues to slide down, going from about R17/USD to a peak of over R19/USD in May because of two main factors. The first is Eskom increasing load shedding to stage 6. The second was when the US Ambassador to South Africa claimed that we had sold weapons to Russia. And we haven't even mentioned the usual culprits: inflation and interest rate hikes.

In general, keeping all your assets in one type of currency can have a negative effect on its overall performance. Every currency is affected by socio-economic factors, not just South Africa’s. Just imagine if you were living in Russia, with all your assets in the rubble. Without going into complicated financial instruments for hedging against currencies, simply buying and holding strong foreign currency, such as euros or US dollars, can have a significant positive impact on your investments.

Dollar appreciation

The US dollar is the global reserve currency. It's accepted almost everywhere in the world. And it's the most trusted currency for international transactions. Central banks, governments and big corporations stockpile it as a safe store of value. And in times of high interest-rate hikes, investors run to less risky assets such as bonds, gold and dollars. This high demand for dollars continues to strengthen its value over time.

Access to global markets

Many of the world's best-performing assets are sold in US dollars. Think Apple (AAPL), Microsoft (MSFT) and Nvidia (NVDA). The US dollar is also traded in significant volumes across various financial markets, making it highly liquid. This liquidity makes it easier for you to buy and sell international shares. By placing a small portion of your portfolio in foreign currencies like the US dollar, you could position yourself to take advantage of the global markets when the opportunity arises.

Becoming a wise investor

Including strong foreign currency in your portfolio, especially the US dollar, can be a valuable part of your investment plan. Achieving your financial goals essentially starts with preserving your capital and purchasing power.

One of the best ways to make forex work for you? Buy USD, EUR, GBP and AUD via Shyft at the cheapest rates, then store it indefinitely until you’re ready to execute some smart financial moves, like buying stocks and ETFs or investing abroad.

Understanding how foreign currencies can sometimes work in your favour is important for anyone investing in global markets. Exchange rates can either lead to losses or result in significant gains, depending on which side you’re on. Investors who can correctly anticipate and manage currency fluctuations stand a higher chance of appreciating the value of their portfolios and achieving their financial goals sooner than anticipated.

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