Multi-currency investing from Luxembourg for EU residents

A multi-currency setup lets you hold balances and investments in more than one currency under one relationship. Luxembourg banks and custodians are used to serving international clients, so accounts in euros, US dollars and pounds sterling are common, and securities can be bought and settled in their own currency.

Funds add a second layer. A fund has a base currency, but it can also offer share classes in other currencies. Some of those classes are hedged, meaning the manager tries to reduce the effect of exchange rates on the class, and others are unhedged. The name of the share class and the fund documents tell you which one you are looking at.

Your spending, liabilities and often your tax reporting are in euros. Reference currency is the currency in which you measure results. If you hold a dollar asset and the dollar falls against the euro, your result in euros can be lower than the result in dollars, even if the asset itself rose.

The effect works in both directions: a stronger foreign currency can improve the result in euros, and a weaker one can reduce it. That is why currency exposure is treated as its own source of risk, separate from the risk of the underlying investment.

• Where your future expenses will be paid: holding some assets in the currency you will actually spend reduces the need to convert.
• Hedged versus unhedged share classes: hedging can reduce currency swings, but it has a cost and does not remove market risk.
• Conversion costs and the exchange rates applied by the entity each time you switch currency.
• Overdraft or credit facilities, which are usually tied to a specific currency and can create exposure if the currency of the loan differs from that of the collateral.
• Concentration: a portfolio that is diversified by asset class can still be concentrated in one foreign currency.

Luxembourg offers an established platform for cross-border investors: a regulated banking sector supervised by the CSSF, a large fund industry with UCITS structures sold across the EU, and custody arrangements where assets are held separately from the balance sheet of the bank. This makes the operational side of holding several currencies straightforward.

What Luxembourg does not do is change your personal tax position or remove currency risk. The country where you are tax resident decides how gains, including exchange-rate gains, are treated and what you must report. Because these rules differ by country and change over time, they should be checked with a qualified tax adviser in your country of residence.

This article is informational and is not personalised advice. All investments involve risk, including the possible loss of capital; past performance does not guarantee future results; and taxation depends on each investor's personal circumstances. Before choosing a currency structure, discuss your situation with a qualified professional.