Did your overseas investment actually make money?
An investment can rise 20% and still leave you with 11%, if the currency it is held in moved against yours. Put in your numbers and see how much was the investment and how much was the exchange rate.
Why the two numbers are different
When you own something priced in another currency, two things move while you hold it: the investment's value in its own currency, and the exchange rate between that currency and yours. What you actually made is both at once.
That is how an index fund can be up 20% in dollars on the day you check it, and up a lot less in the currency you spend - or, the other way round, how a flat year for the fund can still be a good year for you.
The worked example
You live in the euro area and put $10,000 into a US fund when one dollar was worth €0.92, so it cost you €9,200. It is now worth $12,000 - up 20% in dollars. But the dollar has weakened to €0.85, so your $12,000 is worth €10,200.
You made €1,000 on €9,200, which is 10.9%, not 20%. Valued at the rate you bought at, the fund's growth was worth €1,840, and the weaker dollar took €840 of that back.
The formula
With amounts in the investment's currency and rates as units of yours per unit of it:
your gain = worth now × rate today − invested × rate then
from the currency = worth now × rate today − worth now × rate then
from the investment = your gain − from the currency
The two parts always add up to your gain exactly. As returns, the same thing reads (1 + yours) = (1 + investment) × (1 + exchange rate).
Questions
- Why is my return in my own currency different from the investment's return?
- Because two things moved, not one. The investment changed in value in its own currency, and the exchange rate between that currency and yours changed as well. What you actually made is the combination of both. An investment that rose 20% in dollars returns less than 20% in euros if the dollar weakened against the euro while you held it, and more than 20% if it strengthened.
- Which exchange rate should I use for 'when I bought'?
- The rate you actually converted at, if you have it - your bank or broker statement will show it. If not, the market rate on the day you bought is close enough to see the shape of the answer. Enter it as how many units of your currency one unit of the investment's currency bought.
- Does this include dividends, fees or tax?
- Only if you fold them into the two values. Put what you paid in total, including fees, as the amount invested, and put what you would receive today, including reinvested dividends, as what it is worth now. The calculator splits whatever change is between those two numbers.
- Is anything I type here sent anywhere?
- No. The calculation runs entirely in your browser. Nothing you enter is sent to a server or recorded.
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