I was honored to be e-mailed a question from one of our readers about a personal finance issue she is facing in Israel. With her permission, I would like to respond to this e-mail publicly, as to help other facings a similar dilemma.
Disclaimer: I do not advise any specific financial course of action that one should take. The information presented on this site is for informational purpose only; consult a financial advisor as you finances may vary.
Reader: “…I had the strangest conversation in the park with some American who lives in Chashmoniam (but didn’t make Aliyah?)–he said that he thinks the dollar will weaken even further against the shekel and will wind up at 2.9 NIS, even lower than last summer. We should put as much money as possible into NIS ASAP. At this point I had to wrangle my kids and didn’t get to ask him why he thinks so.
Do you have any insight? We have a fair amount of money still in the US (retirement funds, funds for our kids, proceeds from the sale of our apt–this just went through in the past few weeks–which we hope to put into an apt/house here in the next 2-3 yrs).
I fully admit to not having a really clear understanding of how the strengthening/weakening process works, for the record :)”
Shomer Shekalim: This is one the biggest questions facing American Olim. Many are unsure where the dollar is going and begin to panic, not knowing if their move will net big profits or ruin a good retirement plan. I have a friend who, a few years ago, said the same thing as your friend from Hashmonaim. He moved his money from dollars to shekels when the rate was $1: ₪3.2, netting a huge loss.
I personally have no idea where the currency rate will go. On one hand, the United States is throwing out money like it is nothing, so there should be inflation, which will bring down the value of the currency. On the other hand, other countries do the same and all exchange rates are relative. Also, since most countries are heavily invested in the dollar, they could not take a crashing dollar taking all of their exporting business. And, as always, politics will play behind the scenes in ways that no one can know, so it becomes even more difficult to see what will happen.
Like any investment, the way to safety is diversification. Dividing your money between a few currencies, specifically those are likely to rise when the dollar falls, will minimize your risk. Many people have differing opinions about what is the “best” currency: some believe it is the euro, some say the yuan, some say the pound, and others the franc. Since you are working with dollars and shekels, I’d begin with these two. Your bank account should not look like the UN, but diversifying even a bit would minimize your risk. But remember, diversification is not a tool to make you money. Some currencies will rise and some will fall, but overall, a diversified account should keep you at about the same amount of money.
A few notes:
(1) If you have debt in US dollars – keep money in the United States to pay off that debt. Don’t play around with money designated for a debt. Remember, whether the dollar rises or falls, your money in US Dollars and your debt will offset one another.
(2) If your money is in an IRA, you might be better off not touching it. You mentioned in the question that you are afraid of your dollars loosing 25% of its value. Well, if you take it out of your IRA it will be taxed and you will loose around 25% of the value (check with you accountant to see what rate you’ll be taxed). In this case, you’d only be increasing your risk by moving this money.
(3) Foreign currencies are not an investment. No matter what currency you put your money into, you need to set up a sort of tax exempt retirement account that will make you money for your retirement. For that, you need to speak to an expert in the field in America and in Israel. Hope this helps.
If anyone would like to send me any questions to answer, publically or not please feel free to e-mail me at firstname.lastname@example.org
Disclaimer (another one): I am not a financial advisor; I do not advise on investments. I frankly don’t know what will go up and what will fall. But if you have any questions of how to manage your household money in Israel, I am your guy.