The dollar and your investments: the exchange rate

If you invest in U.S. stocks, your result in pesos depends on two things: what the stock does and what the dollar does. How to separate them and what to expect.

When you buy a U.S. stock, even in pesos through the SIC, you essentially hold a dollar asset. Your gain or loss in pesos depends on two moves: the stock's price in dollars and the exchange rate (how many pesos a dollar costs).

How they combine

Result in pesos ≈ (1 + stock's change in dollars) × (1 + dollar's change) − 1

If the stock rises 10% in dollars and the dollar rises 5% against the peso, you gain about 15.5% in pesos. If the stock rises 10% but the dollar falls 5%, you gain only 4.5%.

What moves the peso

• Rate differential: if Banxico pays much more than the Fed, the peso attracts investment and tends to strengthen.
• Risk aversion: in times of global fear, investors tend to seek the dollar and the peso weakens.
• Trade and remittances: exports, tourism and remittances bring dollars into the country.
• Political and economic news from Mexico and the U.S.

A natural hedge

Something many people don't notice: in global crises, stocks tend to fall and the peso tends to weaken. If you own U.S. stocks, the dollar's rise cushions part of the drop in pesos. Conversely, in calm times with a strong peso, your gains in pesos can be smaller than in dollars.

Is it worth having dollar investments?

Many people in Mexico keep part of their investments in dollars to diversify their currency, especially if some of their expenses are tied to the dollar (travel, studies, imported goods). It's not a bet that the dollar will rise: it's not depending on a single currency.

The exchange rate you're charged

When you convert pesos to dollars, the institution gives you a slightly worse rate than the reference: that difference is a cost. On the SIC the exchange rate is built into the peso price. If you use a foreign broker, compare what they charge to convert and to transfer.

Taxes and the exchange rate

For Mexican income tax, gains are calculated in pesos. That means a gain that came only from the dollar also counts as a gain. On the SIC, the brokerage calculates it for you in your statement.

Everything in this section is educational: it explains how investing works, it doesn't tell you what to buy.