How do I manage currency risk as an expat living in Poland?

Currency volatility

We don’t usually think about currency risk when we live in our home country. Our income, bills, and investments are usually all in the same currency.

However, as an expat in Poland, we face a challenge due to the abundance of options available to us.

We have to consider how our home currency interacts with the Polish Zloty. Are we paid in Zloty with expenses in EUR or GBP? Are we paid in EUR or GBP with expenses in PLN?

We also need to think about the currency of our future expenses, like retirement, a second home, or our children’s education.

Fortunately, we don’t need to employ complex currency hedging tools to manage our currency risk. By adhering to a few fundamental principles, we can minimize much of the currency risk from our finances and prevent jeopardizing our financial plans.

6 tips for managing currency risk in Poland

1. Identify your base currency. This is usually the currency of the future financial obligation that you plan to finance, such as retirement, purchasing a home, or funding education.
2. Align the currency exposure of your assets that you intend to use for each of your goals with the corresponding base currency. For instance, if you’re planning to retire in the UK, aim to ensure that your investments and pensions are denominated in GBP.
3. Ensure that you have a clear understanding of your actual currency exposure, as it may not always match the currency on your investment statement or the currency in which the investment is traded. This could necessitate research by you or your financial adviser.
4. Hedge the cash and fixed income portion of your investment portfolio since currency movements can significantly impact the long-term returns of these investments.
5. Data suggests that currency volatility does not have a significant impact on the long-term returns of the equity (stock) portion of a portfolio. It’s generally advisable to maintain diversification across most equity asset classes, industries, and geographical regions, with a slight bias towards the future currency obligation.
6. Reduce forex costs when transferring funds between currencies by utilizing online services such as Wise or Revolut, which can provide you with a more favorable exchange rate than your bank.

If you’re uncertain about the currency denomination of your future obligations, like not knowing where you’ll retire or where your child will attend university, then you should concentrate on creating a well-diversified portfolio.

This strategy maintains your flexibility and avoids a significant wager on a specific currency region. When you’ve made a final decision, you can adjust your portfolio accordingly.

Read our article: Moving to Poland Tips and Tricks: Essential Financial Planning for Expats.