There obiously is currency risk involved in an international stock portfolio, which by the way, is a risk
and a chance. But you still have currency risk even with "only" Euro stocks. I make an example with Apple and the US-Dollar:
Apple is selling it's goods and services in around 150 countries and therefore in a few dozent different currencies. The same goes for the expenses of the company. The US-Dollar is probably the most important currency but it surely not an alone decisive factor. All the other currencies play a role as well.
This is the same for most of the big companies. More so for the blue chips stocks like they are within the DAX Index. Not one of these companies is doing business in solely one currency and nobody can calculate all those different currency dependancies with reasonable effort. Volkswagen is selling it's cars in China for the Yuan, in the United Kingdom for the Pound and so on. Only because the currencies are traded into Euros at some point, doesn't mean that there is no currency risk for the investor involved.
Not to mention that the currency markets are one of the most efficient markets that exist.
And then we come back to the Index Fund argument. I am pretty sure that "diversification" is somewhere in the investment 101 rules. So to spread your money/assets over different sectors, countries, currencies, assets and so on. And that's why I have to disagree hard on the DAX Index example. The strong point of the index fund is it's ability to have a ridiclious broad diversification while maintaining rock bottom fees.
A 30 or now 40 component index is just an utter waste of the diversification benefit of the index fund. An all world index etf contains more than 3.500 stocks. To somewhat replicate the DAX is feasible. Do somewhat replicate an "All World ETF" is utterly impossible, unless you are somewhere in the Fortune 400 list.
Moreover, the bad stocks and the bad outlook of them is already priced in. They are relatively cheap and usually only represent a fraction of the index. So having some money flow into them is usually not that much of an issue and there is always the chance that some of these companies are able to have a comback, which comes with unusual high rewards for the investor. Always remember that Apple was once close to bankruptcy and see where they are now.
Sure you can put most of your money into companies from Germany. But when it comes to returns it was a, comparativly, bad move for the last 5 years. Image related:
View attachment 2576871
All the concern about replicating the German Dax while it was one the lowest performing sectors.
Emerging Markets did better.
Developed Euro stocks did better
US + Canadian stocks did way better
and I even checked for Japanese stocks - they as well did better.
The FTSE all world is just the average market performance for worldwide stocks. And it two was way better than the DAX. For someone claiming that it is easy to throw out the bad stocks, you picked one hell of a bad market segment to invest in.
I don't want to be that harsh, but beating the index after costs is really a hard deal. And most investors are better suited to start saving into a broad and cheap index fund or ETF and to follow a stubborn buy & hold approach.
Claiming to beat the index usually feeds into the overconfidence bias we humans tend to have and the index usually returns at the statisical winner as soon as transparacy is available.
