One of the most important things that you must know about managing this biggest investment of your life is how to compare the returns, or the money you make on your investments.  The following steps will enable you to compare your fund against others in the market place.

Reminder:  Past results are a poor way to predict future returns.  In fact, the only thing we know about past results is that they have been proven statistically not to predict future returns.  It is important to monitor your results to look for red flags and understand the fund.  You can often even use bad results one year as leverage a fund to lower your fees.  but do not choose a fund based on past results.

The Ministry of Finance established a site called פסניה נט, which allows users to compare the returns and risk of all the different pension funds.  Once in the site, you choose the kinds of funds (or specific funds) you want to compare and press “הצג דו”ח.”  Then you will see the following parameters:

מספר – Number of the pension fund

שם – name of the pension fund

תקופת מדווח – the period that is being reported.  The default is 12 months, but you can make it longer.  Keep in mind though that some funds are newer, so they will have a shorter תקופת דיווח.

תשואה מצטברת לתקופה – this is the return (interest earned) on the fund during the period you requested – including compound interest.

ממוצעת שנתית 3 שנים אחרונות – the average annual rate of return on the fund over the last 3 years

ממוצעת שנתית 5 שנים אחרונות – the average annual rate of return on the fund over the last 5 years

עודף/גירעון אקטוארי רבעוני – I hate, with a passion, that this statistic is reported.  First let me explain what it is, then I’ll rant.  A pension fund has to maintain an actuarial balance to offset its insurance and other liabilities it offers.  As a result, an actuarial adjustment occasionally to make sure they can cover their liabilities.  Tachlis, this means that you may has an extra bonus or fee every year, depending on if an actuarial adjustment was needed or not and in what direction.

Let me explain why I hate this statistic, what it has done to our country, and why I think it should be ignored.  Smaller pension companies do not have enough assets to offset all liabilities (specifically the insurance) so they have to re-insure abroad.  The companies, in order to keep down their cost of re-insuring, try to keep older or sick people out of their funds (I have seen funds where discrimination is actually written into the by-laws).  As these companies grow and only have healthy people, they tend to have actuarial surpluses (or only a tiny deficit).  Now people look on this site, see a statistic here and treat it as successful return on investment, which it is not.  Both may get you money, but one is the result of managing assets successfully and one is not.  Sadly, now more companies are competing to show a better statistic and more older and sicker people are being rejected from pension funds.  In the long run, this statistic should be insignificant, since it is just an actuarial adjustment, and it cuts both ways.  Also, the smaller funds will one day realize they have to take in large businesses, which includes sick people in order to join the other in the big leagues.  And when they do, their day or mathematical reckoning will come.

שארפ – Sharpe ratio from the past five years – this tells us how much of the return on investment was from risk and how much was from management of risk.  The higher the number, the more the return is a result of risk management, the lower the number, the more it is a result or risk. 

שיעור דמי ניהול – finance fees – how much of your interest you have to pay to the providence fund provider.  You’ll notice that this is divided into two categories how much you pay for הפקדות, deposits in your account, and how much you pay per year on all the נכסים, or assets in your account.  This number is meaningless.  Few pay the average – most either pay a lot more or a lot less.  See my entry about fees where I discus this topic at length.

יתרת נכסים לסוף התקופה – how much money is in the fund, or market capitalization – in theory, a huge fund is a stable place to keep your money.  I say “in theory”, because I was not born yesterday.  Sometimes managers of big funds make stupid mistakes.  But if all the other numbers look right, this number could be a measure of stability.

צבירה נטו – net accumulation – this tells us how much money has either gone into or left the fund during the period we are reviewing.  Money goes in when (1) people put in more money and (2) the funds gains value.  Money goes out when (1) people take out their money (2) the funds lose value and (3) finance charges are taken by the fund managers.  This number should look normal compared to the market cap.  If a fund is loosing ₪ 100 million, but it is an ₪  8 billion fund, then it could just be that some people took out their savings the past month.  Look at this number along with the return on investment numbers to try to figure out why the money is going in or out.  If you notice everyone is jumping ship on a fund, ask why.  It doesn’t mean you should leave the fund, but it could be a red flag.  Alternatively, if this number is huge, see why it is doing so well – it could be a sign of a successful management, but it could also be the result of a bunch of people blindly put their money there because someone mentioned the fund in an article in the paper.

Use the data above to compare the results of the various funds.  Use the data to tell a story about the profitability of the fund (the return) the stability of the fund (average 3 and 5 year return) as well as the payoff in respect to the risk taken (Sharpe) the size of the fund (market capitalization) and how others are responding to the fund’s progress (net accumulation). 

A good pension specialist, be he an insurance agent or otherwise, will help you review the data of the specific fund in which he or she advises you to invest and will show you how such returns can maximize your pension based on the risk you are prepared to take.