To hedge or not to hedge - that is the question.

Whether 'tis nobler in the mind... jokes. I'm not going to recite Hamlet to you (but thanks to year 12 Drama, I can).

However this is a great dilemma (if ever there was one), because it’s not about just performance of an asset. It’s about understanding what’s actually driving returns and whether the risks you’re taking still feel right for you.

What has hedging got to do with investing? (hint: it's not the gardening varietal)

When you invest internationally, you’re exposed to two moving parts. The first is how global share markets perform.

The second is what the Australian dollar does. An unhedged international ETF means your returns rise and fall with both. A hedged ETF invests in the same companies but aims to reduce the impact of currency movements, so returns are delivered more cleanly in Australian dollars.

Ever heard of hedging your bets (the idea being to reduce the risk)? That's what you're doing, but with currency risk. Hedging is kinda like insurance for it, but it comes with a cost.

Past performance (which annoyingly doesn't mean it's what'll happen in the future) 

Over the past ten years to December 2025, unhedged international shares have returned around 13.3% per year, while hedged international shares returned about 11.8% per year. That gap wasn’t because the companies were different. It was largely because the Australian dollar was weaker over much of that period, which boosted unhedged returns. As always, past performance is not a promise of what comes next. 

The bit that’s making people ask this now 

Right now, the Australian dollar has been doing relatively well. At the same time, markets are jumpy and geopolitical noise is high.

When things feel uncertain, people naturally start paying closer attention to risks they previously ignored. That doesn’t mean you should react, but it does make this a reasonable moment to review whether your portfolio still matches your tolerance for volatility. 

What happens if you hedge or if you don't? 

Unhedged international exposure can be a great long-term diversifier for Australian investors. When the Aussie dollar falls, unhedged assets often rise in AUD terms, providing a useful buffer.

The downside is that when the dollar strengthens, returns can feel muted even if global markets are performing well, which can test patience in choppy periods. 

Hedged exposure tends to smooth out that experience. Returns reflect what global companies are doing rather than what the currency is up to.

You give up some upside if the Aussie dollar falls and pay slightly higher costs, but for some investors that trade-off is worth it, if it reduces stress and the urge to tinker.

So, what to do? 

There’s no single 'right' proportion of hedged versus unhedged exposure. This comes down to personal preference and your sleep-at-night plan. The big question is whether currency swings (or the threat of them), makes you uncomfortable, or tempted to change strategy when markets move. 

It’s also worth stressing that you don’t need to overhaul your portfolio to address this.

If currency risk is starting to feel more front of mind, one potential option is to leave your existing holdings alone and direct future international investments into a hedged ETF. That allows you to gradually rebalance currency exposure without reacting emotionally, or undoing decisions that were sensible at the time.

That obviously depends on how worried you are about it right now and how much you have to add to your investment portfolio regularly.

What about for my Super?

Superannuation adds another layer, as many people already have international exposure there, sometimes hedged, sometimes not. Most people are in pre-mixed funds, so aren't tinkering with the underlying investments - but it could be worth looking at exactly what you're invested in now to make sure you're ok with it.

Final thoughts...

This dilemma isn’t about predicting the AUD, or responding to chaos in the headlines. It’s about making sure your portfolio still feels right in a world that’s a bit unpredictable right now, and taking the level of risk you feel comfortable with. If making some tweaks to your strategy helps you stay invested, calm and consistent, then great. If you're comfortable with what you're invested in now, that's also great. 

Have a money dilemma?

Money dilemmas can be a nightmare! They can leave you up all night ruminating about what to do, have you feeling alone and isolated or just plain ol' stuck. So, we are here to help. I am going to tackle one a week and give you my unbiased, no BS general thoughts on how to tackle your conundrum. We would love for you to send yours (or someone you know) in. 

Obvs all of this is general advice only... especially important to note any and all of the comments above do not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs.