Invest in US stock market? Consider exchange rate risk

Some "experts" may advise you to invest in the US market (check this book). Their argument is , over the years, the annual return of US stock market is around 12%. By investing in an index mutual fund or ETF, you can earn an annual return of 12% easily.

But be careful, if currently you own stronger currency(such as RMB, S$) and you need to convert your money into US$. Since July 2005, RMB has appreciated by 9.9% and it will continue to appreciate. Compared with Singapore dollar, US$ has depreciated by 9%.

So if you wan to get a real annual return of 12%, you need to achieve a return of 21% (12% + 9%) in the US market, which is deemed to be difficult. Even such a great investor as Warren Buffett, has only achieved an average annual return of 16.1% during the past decade (source: money central).

Please consider exchange rate risk when you invest overseas. Don't follow experts' advise blindly.