Exchange Rates and Market Timing

Exchange Rate Questions

Since Brexit (and before but less frequently) we have had a slew of questions asking when the right time to exchange money to/from USD/CAD/EUR etc.

It is impossible to provide a meaningful answer to this. The exchange rate could get better, or worse, or neither. Nobody has a crystal ball of knows enough to predict the changes an hour, day, month, or year ahead.

For this reason, the mods have taken the decision to ban these questions, and threads will be locked and/or removed. Please refer to Rule 8 in the rules.

Regular poster /u/pflurklurk summarised the issues concisely:

Essentially you can’t predict the rate, so really it is up to your risk tolerance. You can transfer it now to ensure you have the sufficient number of pounds to satisfy your liability, or you can take a gamble (or a mixture of both by making multiple transfers).

Martin Lewis (of Moneysavingexpert fame) had the following to say (see his full blog here) This was before Brexit but the points are all still valid:

Ask yourself what rate is good for you?

Whatever happens to the euro rate, the future is out of your control. So forget trying to guess the market and instead ask yourself:

‘Would I be happy to get a rate of €1.26 for my holiday money…?’

If your answer is: “It’s a decent rate, I could have a reasonable holiday on that, and my real fear is it getting worse because that’d make things unaffordable” – then go safe and buy now. However if you do that and the pound strengthens, and in hindsight you’d have been better off waiting, don’t let the bitterness ruin your holiday.

For those stuck on what to do, there are a couple of halfway houses. To hedge your bets, simply buy half of what you’ll need now (using the methods below) and leave half until after the referendum. For another possible alternative, see the trick I’ve added at the end of this blog. (Or see the trick below for another halfway house.)

Personally I don’t do speculation. Instead, I just ensure I always get the best rates on the day.

The easy way to do this is with bureau busting, specialist travel credit cards. The two top picks right now are Halifax Clarity and Creation Everyday, which give near perfect exchange rates in every country, so just pocketing one means you know you’re getting a good deal. Though you do need to pay them off IN FULL each month to minimise interest.

Then if you’re really cool, funky and, ahem, down with the kids, like me, you can put them in your overseas wallet.

Another article here:

Market Timing Questions

Following major world events we have historically had a flurry of questions asking if this is a good/bad time to invest/disinvest/change allocations. The answer, as above, is that nobody knows.

When it comes to planning your personal finances and investing, you should remember this proverb:

The best time to plant a tree was twenty years ago. The second best time is now.

For a great resource on why market timing is A Bad Idea, there is a great Wiki page on Bogleheads

If that doesn’t convince you, have a look at the CBS article “The Smartest Things Ever Said About Market Timing

Here are some choice excerpts:

Peter Lynch, one-time Wall Street darling:

“I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.”

Warren Buffett, the sage of Omaha:

“We continue to make more money when snoring than when active.”

“The only value of stock forecasters is to make fortune-tellers look good.”