4-Minute Money Ideas

Are Foreign Investments Good for Your Retirement Plan?
By Douglas Goldstein, CFP® - helping olim handle their U.S. investments from Israel
Do you want to minimize risk in your retirement accounts? If so, consider diversifying your holdings to include foreign investments.
Investing internationally may boost your returns and minimize risk, as you’re “geographically diversified” and not relying on any single country’s economic performance. Geographic diversification can be achieved by buying foreign stocks, ETFs, mutual funds, REITs, and foreign corporate and/governmental bonds. Saving your pension in one country and keeping your assets in another country is another form of geographic diversification. If you want to know more about minimizing risk in retirement planning, download The Retirement Planning Book, at: Profile-Financial.com/rpb
Examples of global investment opportunities:
Owning Foreign Stocks: Most major stockbrokers can help you buy individual foreign stocks, taking care of any currency conversions if necessary. If you like stocks, also consider buying an “ADR” (American Depository Receipt). These investments trade like stocks in American dollars on U.S. exchanges but represent shares in foreign companies.
Exchange-Traded Index Funds: There are many ETFs that follow a variety of different foreign-based markets and sectors. They can be global, regional, or focused on a specific country. International ETFs may carry lower risk than individual stocks in specific foreign companies because they are diversified.
Foreign Real Estate: Buying real estate in foreign countries can be considered geographic diversification, but it usually requires a greater amount of investment capital than buying stock or mutual funds (i.e., you have to buy a whole property as opposed to just shares). To avoid the management hassles of owning physical real estate, consider buying international REITs (real estate investment trusts). Unlike owning a physical property, REITs pay dividends, mitigate risks among several properties, and are more liquid investments because they often trade on the stock market.
Risks associated with foreign investments
While investing some of your retirement portfolio in international assets can hedge your portfolio against swings in your domestic economy, it’s not risk-free. It’s important to remember that the added risks of currency and political uncertainties in other countries can impact your assets.
For more strategies about investing for retirement, download (for free) The Retirement Planning Book at Profile-Financial.com/rpb
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.

Is there a safe investment that carries little risk?

Bonds are often described as a “safe investment” since, compared with other investments, they have a smaller risk of losing principal. However, just because some people call them “safe,” that does not mean they cannot lose money. Bonds are popular because they distribute interest payments on a set schedule, providing a reliable source of predictable income.

When choosing which bonds to buy, investors can select issues according to their individual risk tolerance – higher yields often correlate with higher risk. This choice gives investors a sense of control, because they can decide how much they are willing to risk to get a particular interest rate in return.

There are many different types of bonds on the market: Treasury bonds, municipal bonds, premium bonds, junk bonds, and more. In fact, bonds are so popular that the bond market is larger than the stock market!

Bonds, bond funds, and bond ladders can be effective tools in hedging against market volatility. Depending on your specific risk level and financial situation, chances are there is some type of bond program that can meet your needs and goals.  

There’s no such thing as a “super safe” investment

It’s important to keep in mind that there are no guarantees. Even though bonds may be a “low-risk” investment, they are not risk-free; investing in bonds and bond funds carries a certain element of risk to your principal. In fact, no investment is 100% safe.

Remember that no two investors are the same. What’s good for one person may not necessarily be appropriate for another. If you are an oleh, you should note that some types of bonds, such as municipal bonds, are generally not appropriate for cross-border investors.

For more specific information about how to begin investing in bonds, and how to determine what type of bonds to buy, download the Profile Bond Toolkit at: Profile-Financial.com/bond-toolkit. It contains a variety of resources that explain how bonds work, and how to determine which bond is right for you.

When you plan for retirement, you must have the right tools. What are the most important things that you need?

An emergency fund

Before you begin saving for retirement, create an emergency fund for unexpected expenses. This way, you will always have money available in a crisis and you won’t need to withdraw from savings or take a loan. Ideally, your emergency fund should cover at least 3-6 months’ worth of expenses. Keep this money liquid, in a bank account, so that you can withdraw it easily in a time of need. You might not earn much interest on it, but the purpose of this money is to be accessible in an emergency rather than growth.

Time

It’s never too early to start saving for retirement. Even if you are just beginning your career, you need to put money aside into savings, in addition to maximizing contributions to your pension and other tax-deferred accounts. The earlier you start saving, the more chance you have for compound interest to work its magic.

A retirement dream

Retirement isn’t only about ending your employment. It’s also about the life you’ll lead when you no longer need to go to the office every day. Do you want to study, travel, or take up a hobby? When you have clear retirement goals in mind, you’ll know approximately how much it costs, and it’s that much easier to plan. Of course, life always throws unexpected surprises your way, so a good retirement plan also takes into account what might happen if your health-related expenses are more than anticipated, or the market doesn’t act as analysts predict. A flexible strategy is critical to retirement success.

A financial plan

To realize your retirement goals, you need to create a financial plan. Not only can a plan help you assess how much money you’ll need to save, but it can help you determine the proper asset allocation and investment model. Consult with a financial planner to assist you in formulating a strategy.

What other tools do you need to plan for retirement? Watch this 9-minute video to find out: Profile-Financial.com/videos/tools

Is your investment account in jeopardy because of your address? If your American brokerage firm no longer wants to hold your account because your legal address is not in the United States, you may find the information contained in the Profile Toolkit useful. (Free download at Profile-Financial.com/toolkit)

Financial companies follow strict regulations for all their clients. However, some companies are deterred by the expenses and time involved in managing accounts belonging to U.S. citizens living abroad. American expats in this situation are left wondering what to do with their U.S. assets once they leave the United States.

Should you transfer your assets out of the United States?

While it is useful having sufficient assets in Israel to cover day-to-day expenses, the question of whether you should move your entire investment portfolio to Israel is complicated. There are points you should consider on both the American and Israeli side.

Beware of losing American tax-beneficial status. If you withdraw money from an American retirement savings account (IRA, 401(k), etc.) and bring it to Israel, not only do you lose the tax-deferred appreciation in America, but you may trigger tax bills and other penalties.

On the Israeli side, there is the issue of incurring additional American taxes if you invest in Israeli mutual funds. Furthermore, Israeli firms may not want to service American clients since it subjects them to further tax reporting to a foreign government (the IRS has a very long reach).

For these reasons, many American expats find it useful to keep their savings accounts in America – for the simple reason that Israel does not have the equivalent of FDIC or SIPC insurance. Once you find a cross-border-friendly brokerage firm (a specialty of Profile Investment Services, Ltd.), you can do a custodian-to-custodian transfer of assets from the old company to the new one to avoid any tax consequences of early withdrawals from retirement accounts.

If you want more information about maintaining your U.S. investment accounts while living in Israel, download the Profile Toolkit at Profile-Financial.com/toolkit, which contains a variety of resources and links.

An Exchange Traded Fund (ETF) is a security that owns a basket of assets (like stocks or bonds), the ownership of which is divided into shares. It is often compared with a “mutual fund,” as a mutual fund is also a basket of assets. One of the main differences between the two, however, is that an ETF trades on an exchange (like the New York Stock Exchange) throughout the trading day. A regular (or “open end”) mutual fund, on the other hand, normally only trades once a day. All the investors in a mutual fund will get the same price when the fund trades at the end of the day.

Why do people invest in ETFs?

• Since the ETF encompasses many different assets divided into shares, it has built-in diversification. There are different types of ETFs specializing in different sectors, so you can choose the type of ETF that suits you.
• As ETFs are a marketable investment, they can be traded throughout the day.
• ETFs tend to cost less than mutual funds because they aren’t actively managed, and so their fees are lower.

What you need to know when considering an ETF

ETFs are not risk-free, as they are affected by market volatility. Moreover, if you own an ETF that holds stocks, you are exposed to the stock market. The fact that the ETF is diversified is in no way a guarantee of your principal.

If you’re considering an investment in any fund, be sure to read the prospectus before investing. For more information about ETFs, listen to a 9-minute podcast at: www.profile-financial.com/ETF

Why Money Transfers Aren’t as Easy as They Used to Be

By Douglas Goldstein, CFP®, - helping olim handle U.S. brokerage accounts, including IRS, from Israel

If you attempted a money transfer recently, you may have been surprised at the amount of documentation you were asked to provide.

Any financial institution can ask for proof as to why you’re moving money. They do this to make sure that they are in compliance with anti-money-laundering regulations.

Even law-abiding citizens may need to submit extra proof when they want to transfer funds from one financial institution to another, especially between banks and brokerage firms.

Bank accounts enable you to take care of daily money needs: pay bills, write checks, use credit cards, or make automatic bank transfers. An investment account is geared to long-term growth or, depending on the holdings, steady income payments (bond interest, dividends, etc.). Even if you have liquid investments in such an account, moving money in and out can raise suspicion.

Possibly suspicious activities even if they are 100% legit

Legitimate money transfers may get flagged as suspicious, so be prepared to show extra documentation in the following cases:

• Sending money to an account with a different name (even to a child)
• Receiving funds and sending them out again shortly thereafter – for example, to buy a house. Be prepared to show proof, like a contract.

Every bank and brokerage house has its own regulations. Before transferring money, make sure you understand what documentation you need to provide and how long it will take the funds to move.

While your money is yours, you may need to follow certain rules to access it. Though we can’t eliminate documentation requests, Profile Investment Services, Ltd. deals with money transfers on a regular basis and can advise you about what you can do to make moving your money go more smoothly.

To get help with oversight of your American brokerage account and accessing your money, be in touch with our office for customer-oriented service and professional advice (02-624-2788).

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.

Can Bonds Increase Income from Your Investment Portfolio?

By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel

A retired widow met with me last week to discuss how to increase income from her investment portfolio. I reviewed her account and made some suggestions for restructuring her investments to get predictable income. We spoke a lot about bonds. Here’s why:

Bonds pay a set amount on a fixed schedule, so if you are looking for predictable income, bonds may work for you. A bond’s interest rate is often commensurate with the level of risk; if you buy a “high-yield bond” (or “junk bond”) you get a higher interest rate than if you buy a high-quality bond. A well-designed portfolio incorporates different types of bonds in order to diversify risk and maximize returns, and it reflects the risk tolerance of the client.

Build a bond ladder

Another way to diversify risk while creating a predictable income stream is to use a technique called “bond laddering.” This means you buy a series of bonds with successive maturities, such as one, two, three, four, and five years. When the first bond matures at the end of the first year, you reinvest the principal in a new five-year bond at the prevailing interest rate. The following year, when the next issues matures, you do the same thing. This way, you have ongoing and dependable returns. You can customize the rungs of your ladder (i.e., the amounts of money you wish to invest), the height (meaning the longer and shorter term investments), and materials (types of bonds, like corporate or government bonds) to suit your own personal needs and risk tolerance. Bonds do have risks, so be sure to speak to your financial advisor, or get in touch with my office, to determine which specific bonds may be right for you.

Two videos on bond ladders

Watch two short videos about creating a bond ladder at: www.Profile-Financial.com/bond-ladder. If you have investments in the United States or are interested in receiving dependable income from your portfolio, call my office (02-624-2788).

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.

What should you do if you receive a lump sum, such as an inheritance, legal settlement, or pension payment? Should it be invested for growth or for income?

Invest for growth

A “growth investment” tries to increase the amount of money you have. Growth investments often entail some level of risk, so if you plan on using the money in the short term, you should consider a more conservative investment. If you hope to grow the lump sum to be able to meet a long-term goal, then consider the amount of risk you can take. What would happen if you lost part or all of the principal?

Growth investments have the plus of potentially increasing the real value of your money over time, since growth investments – like the stock market – could outpace inflation. If you don’t need the extra funds to live now and can tolerate market volatility (which means you could lose money), growth investments may be the appropriate place for your lump sum.

Invest for income

An “income investment” usually has a lower risk level and pays regular interest or dividends. Examples are fixed-income securities, such as bonds, bank deposits, and even real estate (or if you want to own property but don’t want the hassle, you could consider REITs – Real Estate Investment Trusts). If you want to increase your current cash flow, income-producing investments may be appropriate for you.

How to make a decision

If you receive a lump sum, when deciding to invest for growth or income, start by asking yourself:

• Is your emergency savings fully funded?
• Is your retirement savings plan on track?
• Do you need more current income now?
• Would you like to use the money now? Gift it in the future?
• How much risk can you handle?
• What is your investment time-frame?

Some people invest part for income and part for growth. To find out what you need to know, join the upcoming webinar, “How to Invest an Inheritance,” by registering at www.Profile-Financial.com/webinar.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.

The Best Way to Update Investments in an Inherited IRA

By Douglas Goldstein, CFP®, - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel

If you inherit an IRA (Individual Retirement Account), you must be aware of the regulations concerning transferring the account to you, the “beneficiary.” Apart from the technical requirements for processing the account, which a financial advisor should be able to handle, some people also feel a moral responsibility.

When a client recently called me about an inherited IRA, he said, “I would like to sell some of the stocks in the account. Am I legally allowed? And if I do, am I being disloyal to my father’s memory by getting rid of what he bought?”

Personal finance is personal

This client is far from unusual in the loyalty he feels to his benefactor. Many beneficiaries feel as if they are betraying the person who left them the account if they change anything in it. But that is far from being the case.

When choosing investments, you need to have your own goals in mind, rather than those of the deceased, which may have been quite different. I told my client, “I’m sure your father wanted the best for you, which is why he made you beneficiary. Improving the IRA’s portfolio by acquiring investments that are more appropriate for your situation isn’t being disloyal. It’s actually the best way to make the most of the inheritance.”

How should you optimize the investments inside an IRA?

If you sell investments inside an inherited IRA, you don’t pay U.S. tax on capital gains until you withdraw the money. Be aware that generally you shouldn’t hold an annuity or other tax-advantaged investments like municipal bonds in an IRA. Furthermore, if you’ve made aliya, if you transfer the funds out of an IRA to an Israeli investment account, the funds immediately become taxable and would lose their U.S. tax benefits.

Not sure how to properly protect an IRA that you inherited? Go to Profile-Financial.com/inheritedira.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.

What Should You Do With Money in the Bank?

By Douglas Goldstein, CFP®, - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel

Recently, a couple asked me what they should do with their money in the bank. I hear this question quite often. However, as every individual investor’s situation and circumstances are different, there is no standard response that fits everyone. To figure out an answer for this particular couple, I asked:

What’s the intended purpose of this money?

The couple answered that it was the sum of their retirement savings that they had accumulated over the past 18 years. They had over $650,000 in bank deposits, carefully spread out among several U.S. banks so that they were fully insured by the FDIC (Federal Depository Insurance Corporation). However, they also admitted that they were earning next to nothing in terms of interest.

“So for almost two decades you’ve been keeping money in the bank, and you’re thinking of leaving it there for another fifteen years until you retire?” I asked.

When the husband and wife understood that they were not even beating inflation, and the money wasn’t going to be needed in the short term, we spoke about designing a well-balanced portfolio that balanced their risk tolerance against potential growth.

Is there a chance you’d need the money sooner?

If the couple needed the money in the short term to buy a house or pay for a wedding, I would advise keeping it in the bank. For a short-term goal, the money should be liquid, since there might not be time to make up losses if the market dropped.

Are you wondering whether the bank is the best place to keep your assets? To find out more about how to decide to invest for the long or short term, read: www.profile-financial.com/short-term-investing.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.