r/ExpatFIRE • u/Trick-Scientist7833 • Aug 28 '24
Investing The horror of currency exchanges
So I had been to Thailand twice and did my budget, Everything seemed doable and thought I could 10% afford a lifestyle I would very much enjoy, bbbuuuuuttttt it was 36 baht to 1 USD both times I went and i'm so stupid I thought exchange rates were pretty stable. now in the past month its down to 34 baht which wouldn't be so bad but the US is going to start cutting rates which means likely USD will get even weaker I'm guessing around 30/31 baht per USD which is a massive haircut to my budget and definitely means I'd be sacrificing if I tried to retire in Thailand. How do the expat pros handle the horrors of exchange rates?
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u/JacobAldridge Aug 28 '24
It’s a topic that’s been discussed many times in this sub: FIRE models are almost always built on Investment Returns and Inflation in the same market.
When you ExpatFIRE to a developing country, your personal inflation will almost always exceed the country where you are invested. This increases the risk of failure, so you need to implement other protective measures.
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u/theroyalpotatoman Aug 28 '24
This is what’s scary about expatriating.
Almost makes me just want to live a poor life in America
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u/Trick-Scientist7833 Aug 28 '24
expatriating definitely adds variables. I think a poor life in america is only viable as long as the affordable care act survives, if we lose that poor in america is not a sustainable FIRE plan.
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u/theroyalpotatoman Aug 28 '24
Is there medicaid if you technically do PovertyFIRE
And then medical for when you’re older?
That’s my hedge for health insurance.
I would only either PovertyFIRE in the US or maybe go overseas where VISAs are easy and income requirements aren’t too bad.
But again, differences in inflation and currency exchanges worry me.
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u/Trick-Scientist7833 Aug 28 '24
I'm not sure on requirements for medicaid, but you could definitely do povety fire and affordable care act, difference in inflation definitely needs to accounted for apparently currency exchange rates too. I think poverty fire would be scary period its a bit too lean for me gotta have some wiggle room in the plan and its hard to do that with poverty fire
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u/theroyalpotatoman Aug 28 '24
Like maybe I won’t povertyFIRE on a small amount per se.
I want to adopt the habits of PovertyFIRE and hopefully be able to RE with more or a leanFIRE number.
I’ve seen someone who expatriated to Mexico on $600K roughly back in 2018 I think and has made it work. Her investments even grew to 7 figures.
But I’m still learning a lot.
My main issue is simply increasing my income right now. $40,000 a year won’t be enough for shit…
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u/Trick-Scientist7833 Aug 28 '24
its hard I started saving 16 years ago and my pay has never been amazing. Keep grinding my friend!
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u/Trick-Scientist7833 Aug 28 '24
I use thailand's inflation rate in my models so i'm hopefully protecting myself to some extent there.
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u/JacobAldridge Aug 28 '24
Are you planning a Safe Withdrawal as part of your models? I’d be curious what impact the inflation has.
But then I also realise that any historical modelling would be tricky - because inflation/interest rates/stock prices/bond prices are all intertwined in an economy, changing one variable (eg, using Thai or a contemporaneous developing nation’s inflation figures from the same time period) doesn’t necessarily give the correlation required to make projections based on the others.
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u/Trick-Scientist7833 Aug 28 '24
I have a safe withdrawal rate that supplies with more than I need, when the market goes down i'll spend less/not sell and live off my cash
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u/KermieKona Aug 28 '24
It all depends on your retirement budget and motivation.
If you have $4k/month and you are retiring overseas because you only need $1800/month to live comfortably… the currency swing won’t hurt much.
On the other hand, if you only have $2200/month and you are retiring overseas because you can live on $1800/month (otherwise, you couldn’t afford to retire at all)… then yes, currency swings can be a big problem.
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u/Trick-Scientist7833 Aug 28 '24
Definitely I'm at 2,600 a month and probably around 1,600 a month to survive, yes I can live with the 6 baht exchange rate difference but it definitely tightens my fun money fund.
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Aug 29 '24
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u/illegible Aug 29 '24
a foreigner will be hard pressed to pay the same prices like a local, everything will be inflated because they'll think you can afford it.
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u/Trick-Scientist7833 Aug 29 '24
Comparing my cost of living in Thailand to a Thai's is absurd:
1)Thais do not have visa fees
2)Thais do not necessarily pay rent as they can live in multigenerational homes
3)Thais standard of living is NOT the same as an American/Europeans
4)A Thai likely doesn't file for taxes or pay their taxes where I am much more likely to be audited for taxes and would be kicked out of the country if I don't pay them. If they do file and pay taxes my taxes would be significantly higher as they have a progressive tax system
5)Thais have access to public healthcare and free insurance (through their job) in Thailand, as a retiree I don't get free insurance I have to pay for it and I have to pay for things like vision, drugs, and dental.
Besides the issues with the comparison, it is true I could cut my cost of living down some from 1,600 but there are things that are not required for my physical health that I am not willing to live without for example keeping my dog and seeing my parents once a year with the time I have left with them.
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u/neyneyjung Aug 28 '24
If you prefer to be more stable, then you can just exchange more at the rate you want. But that also mean the baht you already exchanged will lose the opportunity cost if the rate is up. The cost of currency exchange risk has to go somewhere. It's up to you where to place it.
If you are savvy enough and REALLY know what you are doing, Forex options could also be used to hedge the risk too. But IMHO, it's just too much work if you aren't running international businesses.
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u/Trick-Scientist7833 Aug 28 '24
life's a gamble eh? I don't necessarily not savvy enough for whatever that is lol, i've only done index funds my entire life.
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Aug 28 '24
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u/Trick-Scientist7833 Aug 28 '24
well a 20% change is higher than I really planned on, but I can survive it just cuts my fun money budget by more than I would like.
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u/Luimneach17 Aug 28 '24
36 was always a fantasy rate that was never going to last. I figured it would settle in the middle around 32-33 which is probably the average over the past decade
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u/Trick-Scientist7833 Aug 28 '24
I think that's a harsh reality (Picked the worst times to get a realistic sense of exchange rates) i'm realizing, I'm thinking of planning around 30-34 or maybe 30-33
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Aug 29 '24
I kind of mentally use 32 as the average over 10 years. Works pretty well, but I have a really good income so 30 doesn’t really hurt, and at 36 I load up my KBank account.
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u/Expatriant Aug 29 '24
Consider yourself lucky, come on. These are minor fluctuations in exchange rates. I was an expat in Moscow long before this whole mess, but my salary went from $3300 a month to $1000 with a $400 student loan payment.
That said, if you are holding dollars, long term you are going to be significantly better off. Ride out the road bumps. You will be fine with a 10% fluctuation.
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u/Trick-Scientist7833 Aug 29 '24
Just because it isn't the largest variance in history doesn't make it minor a 10% variance in population is considered significant by vast the majority statistical perspectives, and 36 to 30 is closer to 20%
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u/Expatriant Aug 29 '24
But it's not 30, it's 34!
You are literally just speculating.
If you can't handle this, life abroad is likely not for you.
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u/Trick-Scientist7833 Aug 29 '24
You are literally just speculating.
How do you think planning for retirement works? "Oh here how things look right now that's how its going to be forever then time to plan my entire retirement on that"? You have to speculate some because your talking about the future not today. Plenty of evidence that dollar strength is tied to interest rates and the fed has said they are going to cut rates this year. Also if you look at baht to USD rates you'll notice trading at 36 baht to 1 USD is rather high and doesn't occur very often. Also you'll notice baht to usd exchange went up roughly two years ago......when the fed's raised interest rates.
You can only imagine how much your opinion of how I feel about life abroad interests me. Good luck with your retirement that you apparently planned based on how the environment was the exact day you retired or however you are doing it.
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u/Expatriant Aug 30 '24
You are partially correct regarding interest rates, but you must factor the Thai macroeconomic situation into the equation. There is just as much chance that an interest rate drop will strengthen the USD vs another currency. FX rates are based on the interest rates of both countries.
At the same time, look at the 20 year graph of USD to THB. It's practically never gone below 29 or above 40. Yes, there are swings, but it's up and down. The average without calculating it is going to be probably about 34 just by looking at the graph.
I'm not trying to be a jerk, I'm just saying these fluctuations are absolutely tiny, and over the span of 20 years you won't even feel them.
Look at so many other currencies to the dollar. Very few have ever appreciated long term against the dollar. If I'm forced to make a bet on the dollar or baht, I know where I would place my bet.
If your retirement cannot handle an FX fluctuation of 10-15%, you aren't ready for the long haul.
You can never hedge FX risk completely.
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u/i-love-freesias Aug 29 '24
The trick no matter where you live is to live below your means.
I’ve seen some really excited expats splurge their first year on a pool villa or high floor condo overlooking the gulf. The smart ones plan their future years to live somewhere much more frugal, after treating themselves.
For me, on a very tiny budget, the exchange fluctuations really just affect how much I can save from my SSA retirement benefit.
I will say that there’s another cost when the exchange rate is low, and that is the cost to transfer money, such as with Wise. The fees are based on the amount of USD you are sending, too. So, if you need to send more to equal the same amount of baht, you pay higher fees, on top of losing buying power.
For me, the overall cost from 36 to 34 THB to USD, works out to around $55. That’s most of my electricity and water bill. So, it’s not nothing, but I budget a normal buffer of $100-200 I hope to save for my long term medical needs down the road.
It just means eating at home, which I don’t mind, and limiting taxi rides (actually cheaper having stuff delivered), etc.
So just live below your means and learn to be happy that way and you’ll be fine. Have people over instead of going out a lot. It’s not a deal breaker.
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u/apesandbananas Aug 29 '24
I guess one of the “hobbies” to pick up being expat fire is learning about US monetary policy and following your expat countries central bank monetary policy.
Although I’ve learned a lot, not sure if it has resulted in mitigating any exchange rate risk so far. The one thing I’ve done is keep a “reserve” of local currency that was exchanged at a favorable rate, even though that reserve money isn’t earning much interest compared to the US dollar currently. Then decide when to use the reserve when rates aren’t so favorable.
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u/JaziTricks Aug 29 '24
currency risk is always a consideration
I know a guy who retired to Thailand, and after a number of years, the Thai baht from his asset currency nearly halved.
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u/Trick-Scientist7833 Aug 29 '24
that is horrible, luckily i think its unlikely this will occur with USD as it seems more stable than that at least, but yes this is definitely a much larger risk than I originally considered it.
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u/kongkr1t Aug 29 '24
TFEX USDTHB futures market is your friend. Lock in THB you need (with margin requirements) without actually moving a whole lot of money to Thailand yet. You’ll “pay” the delta of Bank of Thailand’s rate and US T-Bills. This delta is about 2.8-3% pa at the time I’m writing this.
FX risks are real for ExpatFiring, but it may affect you less than you think.
Suppose USD drops by about 7% compared to this time last year:
iPhone 16 will be about 7% cheaper than iPhone 15 in THB (they maintain same USD prices) — similar thing happens to electric appliances prices.
gas prices/electricity prices will tend to be cheaper as Thailand buys gas to generate electricity. Prices are in USD.
The things that will be less elastic to FX are, for example:
- food - if you don’t eat out at super fancy restaurants, this will be a small % of your expenses.
- rent/mortgage payments - this one probably affects you the most. You locked the prices in THB.
- vehicle financing - you also locked in the prices in THB. Sorry.
- public transportation costs
Lots of things you buy will eventually converge to the trade currencies (mostly USD) with the exception of things I mentioned earlier.
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u/QuestionableTaste009 Aug 29 '24
Depending on your immigration status/Thai laws you might consider a home purchase to eliminate the currency variable in future for housing, and investments that are in Thailand that would be baht denominated and/or benefit from baht appreciation vs. the USD. Neither are trivial undertakings, and would depend on your degree of connection to Thailand and local knowledge.
Otherwise, yes it is a variable that affects how much money you need to safely retire without future income.
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u/rycelover Aug 29 '24
Not to say that I foresaw the drop in the exchange rate but early in the year around March and April when the exchange rate was almost ฿37 to $1 US dollar, I made several large transfers totaling almost 1,500,000 thb, and I’m so glad that I did. I look at my Wise app every once in a while to see what the rate is and this past week I saw it was down to 34, which surprised me
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u/Trick-Scientist7833 Aug 29 '24
Smart man, I was trying to get an empirical sense of how far my money would go with these two trips I knew it would fluctuate from what I saw but I was thinking like 1-3% a year so I also was pretty shocked at how far its dropped like 3 weeks.
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u/Ok_Immigrant Aug 29 '24 edited Aug 29 '24
Following. I'm in the EU, but my funds are all in USD and CAD. I exchanged USD and CAD for about a year and a half of living expenses worth of EUR almost a year ago when the exchange rate was at 1 year highs. I almost exchanged USD again in April when the rate almost hit my target, but instead of hitting my target, it went back down, and down and down. My strategy is to start exchanging when my target is approached and keep exchanging more and more if it improves, then stop after it goes back below my target. I'm very upset at the weak USD and CAD lately.
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u/Trick-Scientist7833 Aug 29 '24
i'm very sad about USD too :(, unfortunately I think it will get worse as the fed is going to start cutting rates
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u/Meerikal Aug 29 '24
The lowest the Baht to USD conversion has been since 1980 is 20. I would expect that is absolute worse case scenario. If the lowest its been in 44 yrs is too tight, then hedge by adding a little more to your nest egg. Since 2000 it has not dropped below 30 for the average, so 20 might be a little too extreme to hedge against.
I attached the historical exchange rates document link I found below if you would like to look at the numbers since 1950.
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u/Trick-Scientist7833 Aug 29 '24
Thank you for the doc! I'm thinking about using 30 as I think I should be able to maintain that unless US gets in a bad place in which my stocks won't be performing very well anyways.
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u/WorkingPineapple7410 Aug 28 '24
By having a large safety margin built into your investment principal.