Where Have 14% of Returns Gone for European Investors in 2025?

Welcome to Financial Fluency - your monthly guide to mastering financial English, learning how money works, and making confident financial choices.

In this issue:

• A Look at the Markets: Performance December 2025

• Where Have 14% of Returns Gone for European Investors in 2025?

• Quote of the Day: Warren Buffett

• We value your feedback

• Word of the Day: Headwind

• Interactive Quiz

• Whenever you are ready, here is how I can help you

A Look at the Markets: Performance December 2025

Vanguard FTSE All-World ETF (Accumulating)

The Vanguard FTSE All-World ETF returned 0.56% in December (Eur) with much less volatility than in November.

iShares Core S&P 500 UCITS ETF (Accumulating)

Another almost flat month for the iShares Core S&P 500 UCITS ETF Acc (Eur).

Vanguard EUR Corporate Bond ETF (Accumulating)

And a flat month for the Vanguard EUR corporate bond ETF (Acc) (Eur).

Bitcoin Monthly Performance $BTC ( ▼ 0.36% ) 

Bitcoin completes the year with a negative month in December and shows a negative return in 2025 overall. However, Bitcoin can regain losses very quickly and we will see what 2026 brings for cryptocurrencies.

Where Have 14% of Returns Gone for European Investors in 2025?

Understanding how currency movements affected European investors' returns

Investors reading the end-of-year financial news may have seen that the S&P 500 gained around 16% in 2025.

My main investment is in the Vanguard FTSE All-World index. With the USA contributing around 70% to this index, I expected an excellent year. And indeed, the index returned an even better 23.71% measured in US dollars.

However, as a European investor, I am interested in the return in euros.

The Performance Gap

When I checked my Vanguard FTSE All-World ETF performance in euros, the result was considerably different: only 9.08%.

Where have over 14% of gains gone?

The EUR/USD exchange rate explains the difference. I predicted this in February 2025.

EUR/USD: Trump 1 and Trump 2

In this newsletter on the 14th February 2025, I wrote about how EUR/USD in 2025 may mirror Trump's first year of his first presidency in 2017.

Let’s see how this played out in 2025:

You can see how the price action of EURUSD in 2025 was remarkably similar to 2017. Throughout 2025, EUR/USD strengthened from around 1.035 to 1.175. This was an increase of nearly 14%.

If you held $100 on 1st January 2025, it would be worth about €96.59. The same $100 on 31st December 2025 would only be worth €85.14.

Positive Result Despite 14% Headwind

European investors in dollar-dominated markets faced a 14% headwind this year. Given this, a 9% gain looks quite positive, roughly matching the S&P 500's long-term average returns.

Swings and Roundabouts

European investors wanting global market exposure need to accept currency fluctuations.

Sometimes these fluctuations work in your favour, sometimes against you, as we saw in 2025. These fluctuations usually balance out over time. Look how close EUR/USD was at the beginning of Trump's presidencies in 2017 and 2025.

European investors can hedge against currency fluctuations, but it's expensive. I don't hedge, believing things even out over time.

My Reflection on 2025

We cannot expect positive returns every year, but any positive result is good news for me.

I also feel we have some performance 'banked'. The strength of the euro will likely reverse eventually, and European investors will benefit from this even if markets stay flat.

The real answer is to look at performance over a 5-year period or even longer which shows nearly an 80% return!

As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.

Quote of the Day: Warren Buffett

This quote captures exactly why European investors shouldn't worry about 2025's currency headwind. If you're investing in a global ETF with a 10-year mindset, a single year's 14% currency movement is just noise. The underlying companies in your portfolio don't become less valuable because the euro strengthened. Their fundamentals remain unchanged. Currency fluctuations reverse, companies compound, and patient investors benefit from both over time.

We Value Your Feedback!

Your opinion helps us improve and lets you suggest topics or ask Business English questions for future issues.

Word of the Day: Headwind

Headwind - noun - literally, a wind blowing from directly in front, making forward progress more difficult; in business and investing, any force or factor that slows growth, reduces returns, or makes achieving objectives more challenging.

Context and Usage: The term comes from aviation and sailing, where headwinds force pilots and sailors to work harder to maintain speed and direction. In financial markets, headwinds represent obstacles that don't prevent progress but make it more difficult. Currency movements, rising interest rates, regulatory changes, or economic slowdowns can all act as headwinds to investment returns or business growth.

Note: Headwinds are temporary forces, not permanent barriers. While a 14% currency headwind affected European investors in 2025, currency movements reverse over time, sometimes becoming tailwinds (favourable forces) that boost returns instead.

Common Collocations:

Currency headwind - exchange rate movements working against returns
The strong euro created a significant currency headwind for European investors holding US assets throughout 2025.

Economic headwind - broader economic forces slowing growth
Rising inflation acted as an economic headwind for consumer spending in the retail sector.

Face headwinds - encounter opposing forces or challenges
Technology companies faced regulatory headwinds as governments introduced stricter data privacy laws.

Overcome headwinds - succeed despite opposing forces
Despite currency headwinds, the global ETF still delivered positive returns for European investors.

Macroeconomic headwinds - large-scale economic forces creating challenges
Macroeconomic headwinds including higher interest rates and slowing GDP growth affected corporate earnings forecasts.

Business Example:
The airline reported strong operational performance despite facing headwinds from higher fuel costs and increased competition on European routes.

Investment Context: Understanding headwinds helps investors maintain perspective during challenging periods. A 9% return might seem disappointing compared to market gains of 23%, but when you recognise the 14% currency headwind, that 9% represents solid performance against strong opposing forces. Successful long-term investors focus on factors they can control rather than temporary headwinds that eventually reverse.

Interactive Quiz

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Disclaimer:

This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.

Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.