When you invest in assets denominated in a currency other than the euro (for example, US shares in dollars), your final return doesn't depend only on how that asset performs: it also depends on how the exchange rate between that currency and the euro moves.
How currency risk works
If you invest in a dollar-denominated asset and that asset gains 10% in dollars, your final return in euros can be higher or lower than that 10%, depending on whether the dollar has strengthened or weakened against the euro over the same period. A stronger dollar against the euro adds extra return to your euro-denominated investment; a weaker dollar reduces it, regardless of how the underlying asset performed in its own currency.
A simplified example
If a US stock rises 10% in dollars, but the dollar weakens 5% against the euro over the same period, your real return in euros would be around 4.5%, not the 10% shown by the asset in its original currency. The opposite effect is also possible: a stronger dollar could make your return in euros exceed the asset's return in dollars.
Why many global funds already include diverse currency exposure
A global index fund, by investing in companies across multiple countries and currencies, already naturally diversifies currency risk across many different currencies, instead of concentrating all your currency exposure in a single one, as would happen if you invested, for example, exclusively in the US market.
Currency-hedged funds
There are versions of certain funds that include currency risk hedging (usually identified by the word "hedged" in their name), designed to neutralize the exchange-rate effect so your return more closely tracks that of the underlying asset in its original currency, in exchange for an additional cost for that hedge.
It doesn't always make sense to hedge currency risk
Hedging currency risk has a cost, and over the long term, in portfolios sufficiently diversified across multiple currencies, many investors choose to take on that risk unhedged, reasoning that it's partly diluted through diversification across different currencies and that, over the long run, its effect tends to partly offset itself.
Keep this factor in mind in your planning
When projecting your long-term savings with international exposure, it's worth being aware that your return in euros can differ from the return of the asset in its original currency. Our compound interest calculator lets you simulate different net return scenarios already adjusted for these effects.