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Israeli Investing 101

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

I’ll be blunt.  When it comes to investing, most people have no idea what the hell they’re doing.  But it doesn’t have to be that way.  Israel’s financial system has a fantastic system in place in order to help people invest safely and wisely.  And the best part is that quality, objective financial advice is usually free.

Before you need to invest, you need to know why you are investing.  Investing in order to save for a down payment on a mortgage is not the same as investing in order to preserve the value of money, nor is it the same as investing for retirement. Each of theses goals has a specific rationale behind it that impacts the risk one is willing to take, the amount of investment and the oversight required.

Once you know why you are investing and how much you are looking to invest, the next step is to find someone to help guide your investments.  In Israel, the person to look for is a yoetz hashkaot, a certified investment advisor.  This is not the same as a meshavek hashkaot­, someone licensed to sell investments.  Only a yoetz hashkaot is entirely objective, a term with significant legal ramifications.  Buying investments from a meshavek hashkaot is like buying a second hand car and relying on the car salesman for a fair assessment.  I am not saying that the meshavek hashkaot is lying, but his goal is to sell you the best financial option that he has to offer, not necessarily the best financial option from among all the options available.

Finding a yoetz hashkaot is easier than you think; just go to your bank and ask for one.  Speaking with your yoetz hashkaot at the bank and receiving his advice an analysis is free, although the bank does take a commission of 0.4% – 0.7% on buying and maintaining some investments.  Some banks do not offer investment counseling unless you have a lot of money.  If you have a bank like this, I suggest speaking with the manager or telling your banker to #&@% off; many banks offer free advice, regardless of how much money is being invested.  I bank at Mercantile, and I received free investment counseling even though I began with only NIS 7,000 (I am not sure if the policy of offering and limiting investment counseling depends on the bank or the specific branch.)

Alternatively, you can look for a private yoetz hashkaot who will take a different commission (or maybe just a fee for his advice and analysis) and will do the buying and selling of investments for you or show you how to do it yourself.  If your Hebrew isn’t that great and your bank doesn’t have someone who can speak English, it may be worthwhile to find a yoetz hashkaot who speaks English.  Also, if you’re not comfortable with your bank’s yoetz, you should find a private one.  Just make sure that the person you find is a yoetz hashkaot, not a meshavek hashkaot.

Once you know why you’re investing and you have a yoetz hashkaot, you’re almost ready to go.  The yoetz will begin by explaining his liability to you and then give you some simulations to test how you feel about risk.  In most cases, your yoetz will take a few minutes to talk you out of investing in the currency market and begin to direct you to mutual funds (as a Dave Ramsey fan, I appreciate this).  Depending on your adversity to risk, the yoetz will find a few funds that match your preference.  Finally, you’ll compare funds by discussing the risk, the sharpe, and fees.

A good yoetz hashkaot is not just someone who can give you good advice, but is also someone who holds your hand and explains everything to you clearly so that you can make a decision.   Let me say that again – so that you can make a decision, not him.  Don’t invest anything if your not 100% comfortable with the decision.

What has your experience been investing in Israel?  Is there a bank or yoetz hashkaot that you recommend?


8 Comments

  1. RD says:

    Maybe you have an idea for me –
    For the simple person that has some money that can be put aside, how would they go about doing it? Is it something that we can do ourselves? Or only though an advisor…..

    For a concrete example –
    Let’s say there is some “spare” money in the checking account (that of course earns zero interest here). Bar Mitzvah coming up, and want to put some of that money aside as a chunk in anticipation of the upcoming expense. For argument’s sake, let’s say 10K NIS.
    How can we make this happen?
    I actually do have a very good relationship with my bank, but even there, I do not get the feeling that there is full transparency. They are selling all kinds of products that have some many variables that it is hard to get my head around them.
    Is there any sort of free market, or “zap” or “yad 2” that has a listing of financial products that are there for the taking?
    Thanks!

    • jonnydegani says:

      In my opinion, 10,000 is not enough to warrant going to portfolio adviser. In your case, I’d go with the bank. Also, I do not believe that the bank’s financial adviser has a significant conflict of interest. The laws that came out of the Rabinovich conference in 2005 did the same for Israel as the Glass Steagall Act did for the USA in 1993 – it separated corporate and investment banking. This means that there are specific laws in place that do not allow the bank to hold investment companies as well and if there is any conflict of interest, you will be notified.

      • RD says:

        Thanks for the response.
        Can you suggest an annual interest rate that I should be looking to get? I am not sure what the market has to offer.
        I have seen some frighteningly low offers for interest rates.

      • jonnydegani says:

        Low risk ~4%. Average risk ~8%. High risk ~10-12%.

      • RD says:

        Did some research at my bank, Bank Discount. The options are not so “atraktivi” as they like to call them at the bank.
        For CD’s – something for the length of a year, they are offering ~0.5% annual fixed interest. I would say that it is better than just letting my money sit there, although not by much. Even to get the 0.5%, I am giving up liquidity, which is a cost to itself.
        Do you think that I am missing something big here? Or if I am going to be in the world of CD’s, this is the best that I can hope for.

      • jonnydegani says:

        CDs never pay significantly. You should ask for the yoetz hashkaot and tell him you want to choose a mutual fund – קרן נאמנות.

  2. jlajr says:

    I had an interesting discussion with my bank’s investment adviser a couple of weeks. I explained the changes I’ve made in the past year since I last spoke to him: 1) I’ve moved out of Israeli mutual funds into long-term Israeli government bonds (because of PFIC issues – which were not mentioned last year, even though he made me fill out and sign an IRS form before he would even speak to me – then again, he’s an investment adviser not an accountant or a tax lawyer); and then 2) moving a large portion of my portfolio from those bonds into dividend-paying stocks.

    Even though I characterize my outlook and my portfolio as conservative – because I’m trying to invest in value, not growth, stocks – he did not agree because the current split is about 75% stocks/25% bonds. He didn’t ask about, and therefore did not consider, my other savings vehicles – pension plan, bituach minhalim, and keren hishtalmut – which overall lean to the conservative side of the scale.

    Also, even though I expressed my desire to continue to invest in dividend-paying value stocks, he recommended what I would consider a growth stock, at least according to how he described the company and why the bank was recommending it.

    My lesson moving forward: Even when a licensed adviser (investment, pension, and so on) recommends something, I’ll continue to ask why and hope that the reasons match my investment outlook.

    • jonnydegani says:

      agree 100%. The mark of a good investment adviser is someone who doesn’t dictate, but works with his clients to invest according to his client’s investment needs and preferences.

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