Israeli Citizen: Investing Dilemma

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Cintrapark
Posts: 39
Joined: Tue Sep 15, 2015 1:58 am

Israeli Citizen: Investing Dilemma

Post by Cintrapark » Fri Aug 11, 2017 9:58 am

Age: 41
Sex: Male
Country of Residence: Israel
Pension Balance: $85,000
Work related Investment Account: $20,500
Emergency Fund: $10,000
Personal Investments: $25,000 (75% VWRD and 25% SAAA)
Apartment Value: $980,000
Mortgage: $126,000

As you can see from the above I have circa. 25k invested in ETFs. Every two months I transfer circa $1,675 to Internaxx in Luxembourg to invest in the above ETFs. In Israel you are taxed around 25%.

I recently found out that the Israeli government are offering an investment incentive (Kupat Gemel) whereby you are allowed to invest up to $19,500 a year in passive funds. If this is withdrawn after the age of 60 you can take the entire sum tax free. The fee is around 0.70%.

In light of the above, I'm beginning to wonder if I should cash in my shares and invest my personal funds in the Kupat Gemel instead? The disadvantages are that I have to wait until I'm 60 to withdraw then, AND that the money won't be offshore (I like the idea of spreading my risk between having money in Israel and abroad).

Any thoughts?

gkaplan
Posts: 7034
Joined: Sat Mar 03, 2007 8:34 pm
Location: Portland, Oregon

Re: Israeli Citizen: Investing Dilemma

Post by gkaplan » Fri Aug 11, 2017 4:52 pm

Cintrapark wrote:Age: 41
Sex: Male
Country of Residence: Israel
Pension Balance: $85,000
Work related Investment Account: $20,500
Emergency Fund: $10,000
Personal Investments: $25,000 (75% VWRD and 25% SAAA)
Apartment Value: $980,000
Mortgage: $126,000

As you can see from the above I have circa. 25k invested in ETFs. Every two months I transfer circa $1,675 to Internaxx in Luxembourg to invest in the above ETFs. In Israel you are taxed around 25%.

I recently found out that the Israeli government are offering an investment incentive (Kupat Gemel) whereby you are allowed to invest up to $19,500 a year in passive funds. If this is withdrawn after the age of 60 you can take the entire sum tax free. The fee is around 0.70%.

In light of the above, I'm beginning to wonder if I should cash in my shares and invest my personal funds in the Kupat Gemel instead? The disadvantages are that I have to wait until I'm 60 to withdraw then, AND that the money won't be offshore (I like the idea of spreading my risk between having money in Israel and abroad).

Any thoughts?
This post may interest you.viewtopic.php?f=1&t=225320&p=3485143&hi ... A#p3485143
Gordon

Valuethinker
Posts: 32937
Joined: Fri May 11, 2007 11:07 am

Re: Israeli Citizen: Investing Dilemma

Post by Valuethinker » Sat Aug 12, 2017 10:39 am

Cintrapark wrote:
Fri Aug 11, 2017 9:58 am
Age: 41
Sex: Male
Country of Residence: Israel
Pension Balance: $85,000
Work related Investment Account: $20,500
Emergency Fund: $10,000
Personal Investments: $25,000 (75% VWRD and 25% SAAA)
Apartment Value: $980,000
Mortgage: $126,000

As you can see from the above I have circa. 25k invested in ETFs. Every two months I transfer circa $1,675 to Internaxx in Luxembourg to invest in the above ETFs. In Israel you are taxed around 25%.

I recently found out that the Israeli government are offering an investment incentive (Kupat Gemel) whereby you are allowed to invest up to $19,500 a year in passive funds. If this is withdrawn after the age of 60 you can take the entire sum tax free. The fee is around 0.70%.

In light of the above, I'm beginning to wonder if I should cash in my shares and invest my personal funds in the Kupat Gemel instead? The disadvantages are that I have to wait until I'm 60 to withdraw then, AND that the money won't be offshore (I like the idea of spreading my risk between having money in Israel and abroad).

Any thoughts?
You transfer roughly $10k pa into your Luxembourg account?

I think it would be reasonable to use the Israeli government account:

- the tax benefits are significant
- presumably you can buy global equity index funds this way? That reduces your exposure to Israel investment risk. If this money as just in the Israeli index, I would think that is insufficient diversification
- age 60 is only 19 years away. Unless you can see a clear reason to need the money between now and then, you are likely to work until age 60? So you don't have a likely need for that money before 60? And if you did, you could use other sources of funds to meet that need? (or even take a loan against your property equity?)

So new investment, you could make this way. That $10k a year into the Kupat Gemel.

As to your existing investment, some part of me says just let it ride- -don't add to it, but don't sell. Presumably that does not generate any further tax liability, except as to dividend income? So say 25% of 3% average yield? That's about 0.75% which is not too bad.

The main issues for me would be:

- currency risk - are the KG investments linked to the Shekel? i.e. do they hedge back into shekels. Israel has a relatively small currency in terms of world markets, and therefore volatile, and therefore too much of a risk in my mind given all your other assets (job, property) are in shekels

- political risk - there is both the domestic political risk of a future government changing tax rules (this happened to me on my UK pension and it is painful, to say the least) and also the geopolitical risk, which is high for Israel. T Probably these never happen (as they have never played out in Israel's short history) and "the rest is noise". Or good things happen, and Israel is the next Singapore (halfway there already, in some ways a more successful economy than Singapore because innovation is at the heart of it).

One probably also has to remember that Israel once had hyperinflation. Again probably never again. But another reason not to have all one's assets either in Israeli stocks nor (especially) Israeli government bonds (unless inflation linked).

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celia
Posts: 6944
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Israeli Citizen: Investing Dilemma

Post by celia » Sat Aug 12, 2017 11:06 am

Cintrapark wrote:
Fri Aug 11, 2017 9:58 am
As you can see from the above I have circa. 25k invested in ETFs. Every two months I transfer circa $1,675 to Internaxx in Luxembourg to invest in the above ETFs. In Israel you are taxed around 25%.
I assume this means you have to give up 25% of the growth each year. Once the first year's growth is taxed, it is not taxed again in the second year. Do you pay taxes out of your earned income each year or have it subtracted from the growth so that it is like you are only keeping 3/4 of each year's growth?
I recently found out that the Israeli government are offering an investment incentive (Kupat Gemel) whereby you are allowed to invest up to $19,500 a year in passive funds. If this is withdrawn after the age of 60 you can take the entire sum tax free. The fee is around 0.70%.

This sounds like it is intended to encourage savings for your retirement. Does the government have a pension program for older people who worked most of their adult years and this will be in addition to the government pension program? Will the pension be impacted if you do save in the new program? Are the investments in the new program diversified and safe or could you lose all that money? What are the taxes if you take the money out before age 60?
In light of the above, I'm beginning to wonder if I should cash in my shares and invest my personal funds in the Kupat Gemel instead? The disadvantages are that I have to wait until I'm 60 to withdraw then, AND that the money won't be offshore (I like the idea of spreading my risk between having money in Israel and abroad).
Diversification is good and there are many kinds of diversification: different assets, different levels of safety of assets, different tax rates or fees, different geopolitical impacts to your assets, different currencies, putting the assets in different kinds of accounts (taxable, long-term saving for retirement, accounts meant to save for college or health). In the US, the later would be equivalent to taxable accounts and various tax-advantaged accounts.

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