A dual citizen, residing in one country and keeping assets in another, should consider currency diversification.

Currency exposure isn’t only about which currency (USD, EUR, NIS, GBP, etc.) your assets are in, but currency diversification is also determined by the underlying investments in your account.

Mutual funds are generally considered good diversification tools as they are built so that the movement of any one security in the fund won’t dramatically affect the product’s value. However, one downside of mutual funds is that it’s hard for Americans living outside of the United States to buy them, either in America or offshore.

Therefore, many American expats turn to ETFs (Exchange Traded Funds) to diversify the holdings in their investment portfolio.

If you found a foreign bank that would open a brokerage account for an American citizen, you could, through that account, invest your foreign currency in a euro-denominated ETF, based, for example, on large European companies. This would give you exposure to a diversified list of European companies.

However, you could also, and perhaps more easily, take your U.S. dollars and through aU.S.brokerage account, invest in a dollar-denominated ETF based on the same index of European stocks.

Even though the two ETFs are denominated in different currencies, the underlying investments can be the same and have the same currency denomination (euro). Indeed, the same investment will be worth the same amount regardless of whether it is held in one currency or another.

While two ETFs holding the same underlying securities may have similar returns, they may not necessarily yield the same revenue to your pocket. This difference is because of taxes. A purchase of a euro-denominated ETF through a non-U.S. brokerage firm or bank may be a worse choice for Americans since their accounts could then be subject to more complex reporting requirements in both America and the foreign country, and they may possibly have to pay more in taxes.

Betting on currencies is like gambling because one side always wins and the other loses.  Compare this to investing in stocks, where one stock can go up without another stock necessarily going down.

So when deciding which assets to put in your investment portfolio, keep in mind your address, your tax reporting requirements, and your currencies.