Exchange rates, favourable strategies

Oddly, I did not find an existing thread on this topic.

Recently the USD to EUR exchange rate has taken an unfavourable turn.
I am looking to invest in real estate in Europe in the next few years and would prefer to exchange funds over time at favourable exchange rates.

I am currently using Transferwise but they impose a 0.4% annual fee to hold Euros so that is less than ideal.

Are there any strategies that I could consider to make this process less painful and expensive?

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I am currently using Transferwise but they impose a 0.4% annual fee to hold Euros

What makes you think that? It’s not mentioned here:

@pbm They recently added this fee for balances above €15,000:

The fees apply from December 19 this year.

@mmtravelguy Once converted to EUR there’s no need to keep the balance with TransferWise. Not sure if you’ve been able to open a Portuguese bank account yet, but if you have, just transfer it there.

Alternatively, I would recommend opening an Interactive Brokers account. They will let you hold both USD and EUR balances, and you can fund your account directly from TransferWise. You can even make the currency exchange with IB, they have very competitive fees/spreads. They charge $10/mo minimum commission per month if you don’t have at least $100,000 (or equivalent in other currencies) stored with them, however.

You’ll break even moving your funds from TW to IB at around €25,000, even if you don’t trade or exchange any currency with them.

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I’ve been following the US-Euro exchange rate for decades now. This is my prognosis based on research. The USD is going down and should for quite a while based on how badly the American people are handling the covid crisis. However, in about a year or two as the crisis abates and the vaccine takes hold, the American dollar should rebound - ignoring the weekly and even monthly fluctuations. (Generally vaccine news makes the dollar stronger and soaring covid numbers makes it weaker on daily fluctuations, for example.) I would say transfer what you can now and then just keep saving USD until it starts to rebound. I suggest every few months google about the USD/Euro exchange rate. There are very few articles about it but I do not recall a single wrong one over all the years - usually predicting what will happen in the next 6 months to a year.

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Note that there can be a delay in getting your money back out once you put it into IB - I have had 40 day delays imposed on withdrawal after a deposit. It probably has to do with AML and my having multiple accounts and multiple linked accounts but there do not appear to be clear rules either.

That’s a good point @jb4422

Although I’ve most commonly seen these delays after liquidating a position. Had you recently sold a position or was it cash that had been sitting in your account for a while?

I have had it as a hold on funds deposited - put money in, get told I can’t withdraw it for 40 days. I forget the details since it isn’t something that comes up often.

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Michael, what exactly do you you mean by “process” that you want to be less painful? To sit on euros cheaply? To not pay spread to translate?

Basically, less hassle. Not having to worry about FBAR reports, fees, costs, etc.
And by painful I meant that in a few years if i need Euros and the dollar is really weak that is going to be less fun exchanging at a terrible rate and make the process less desirable.

@tkrunning is right about IB as a place to park EUR without the offshore reporting, but you’re going to pay negative interest rates on that kind of balance no matter what you do or where you go. IB’s rate is currently -0.9% on anything above EUR100k.

If you are convinced of a negative state of affairs, you might consider using one of the currency trading platforms like FXAll or OANDA and simply hedge - buy EUR/USD at 50:1 leverage and just keep enough on deposit to cover margin, which means you can leave the rest of your cash doing something else if you prefer. Current financing is 0%, and no offshore stuff or reporting requirements. You will get taxed on the gain, but you could factor that into your hedge as well and just oversize the hedge such that your expected gain covers the taxes.

Alternatively, you can buy currency options too. OANDA used to do that, but doesn’t seem to any more. CME lists EUR/USD futures under contract “6E” which is a notional EUR125k, and lists options on the futures. Naked calls isn’t the cheapest strategy, of course, but you might do something like buy the long call and sell short dated calls against it or something. But this is just a different level of complexity that I assume you want to avoid.

Of course some would say some of the point of offshore is to have the assets actually off shore, which means finding a bank offshore and going through the whole mess. Obviously there’s reporting requirements. You could go buy property of course and avoid it, or buy physical gold in a vault. But those options are super cumbersome.

I thought about gold, as it has an inverse relation to USD strength. (except for the last two weeks when they are both falling).

Perhaps a more ideal investment is some fractional real estate ownership that has liquidity and income generation built-in. That might be easy to find something churning 1-3% a year, but there is some risk and you have to trust the people managing it, which can be a challenge.

Giving up 1% a year to IB is not appealing to me. And I typically avoid options for long-term trades.

I suppose that the GV investment itself is one way to do this and you could in theory invest more than the minimum 350k. I don’t know that I would do that, but food for thought…

It’s in the rules:

You can use wire transfers instead and funds will be available immediately.

Huh, I thought the hold would have been applied to wires as well. Thanks. (Fortunately it’s not something that comes up much in my life, I don’t use IB as a bank…)

Charles
You assessment seems correct. USD to EUR hit multi-year lows today.
I am not sure it is so much related to COVID but rather to stimulus proposals in Congress.
In any event, it does not bode well for me since I may be too late to the party to convert funds.
Do you anticipate much more downside to USD?

It’s not a party. I sent $2000 in June to euros when the exchange rate was two cents more. So if the dollar gets weaker, I can send $2000 back to dollars and make money even after exchange fees (via Transferwise). I guess that the dollar will get weaker for the next few months. But you are lucky, the vaccines are doing so well that IF - and that’s a big IF - Americans can all get vaccinated by late spring, the dollar will be stronger because the American economy will be churning again. Without the vaccine AND most Americans taking it so that the infection/death rates go down, I would never make that projection. But then again, Europeans will be taking it at a greater rates so there’s that. But, if a Democratic Congress passes a large stimulus bill in the winter, the dollar goes up. But if in the very unlikely case that the vaccines have a serious side effect, then the Euro will be stronger. How far the dollar will rebound is just too hard to project in the long term (more than 6 months) is hard to predict. It may never be at this level again - I don’t know - so perhaps changing as many dollars now before it gets lower… etc, etc.

I’ve been beating myself up on this and imagine still will be regardless whether I end up investing. For perspective you need to look at the charts and two years ago the dollar hit $0.80. Six years ago, it was at $0.70. Is it at the March 2020 or December 2016 high? I don’t think it’s a terrible exchange, but maybe not the time to convert €350-500k at once.

I’ve been buying into $FXE to hedge against this and it’s the only investment where I’m disappointed to see it go up, but boy did it go up today. My concern is converting to transfer to actual Euro. It might be some creative explaining to show it’s been transferred to a like investment and shouldn’t incur gains.

Well, all I can say is that if you have paid your taxes, it’s your money and you can do what you want. Most people are pretty sure that the dollar will get weaker for a while - after that, no one knows - not that anyone really can be sure now.

But property prices will more likely go up. (I loved Portugal 10 years ago and I beat myself up for not looking into real estate then when I could have bought something super-duper cheap.) So once you convert to Euros and you want property, you can get it.

If you want just to earn money, maybe the near future is better off in the Chinese stock markets or something else. Nothing is a sure thing. Risk nothing, gain nothing.

If your goal is still to avoid the Transferwise 0.4% annual fee on holding Euros and also avoid FBAR then you might want to consider an account with Revolut. They have been available in the US since March.

FXE != EUR. You’re going to pay cap gains taxes on FXE. Period. If you want to do this, you need to buy actual EUR and stuff it somewhere. IB or OANDA are good choices IMO. IB will get you the first 100k without negative rates, I’m not sure OANDA will charge negative interest at all.

Revolut would seem to only allow a US citizen to hold a USD balance.

I understand and gains are relatively minimal at this point, but it’s a short term place to park some money. Short of actually holding in actual EUR, I’d rather not be all in USD cash with how markets and exchange are moving. Hoping to have access to my PT bank soon to hold funds there.