Holding dollars vs owning dollar assets
Separate the return on an asset from the currency in which you measure it.
The asset and the currency
A dollar balance is money held in USD. A dollar-denominated share or bond is an asset with its own price, income and risks. An exchange-rate chart cannot tell you how that asset performed.
Measure the result in the currency you will spend. A foreign asset can rise in its local market while an exchange-rate move reduces its value at home. The two effects combine multiplicatively.
Check a fund’s underlying holdings and hedging policy, as well as its trading currency. A USD price label alone does not establish that every holding has only dollar exposure.
A simple example
Hypothetical arithmetic, before tax. The cost examples assume unchanged reference rates unless a currency move is specified.
1.10 × 0.95 − 1 = 0.045
Try the example
Open this example in the simulator →Loads 10,000 with a 0.5% haircut per exchange and zero fixed fees. The simulator uses actual currency history, so its result will differ from an unchanged-rate example. It models cash, not the return on an asset.
Sources and editorial notes
SEC Investor.gov · International investing. Vanguard explains fund share-class hedging.
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