Balancing Pension with Personal Portfolio - Israel

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Topic Author
TLV_London
Posts: 9
Joined: Sun Oct 04, 2020 11:40 pm

Balancing Pension with Personal Portfolio - Israel

Post by TLV_London »

Hi

Would love to hear our feedback on my current situation. I'm 44 years old and live in Tel Aviv, Israel. I currently hold a 2 ETF fund ETF portfolio (80% Global tracker and 20% Bond).

In addition, I also have a defined contribution pension, which my work contributes towards. This is a very safe pension plan that only has a 52% exposure to shares. This is far too conservative for me as I will be working for at least another 23 years.

Pension plans are quite rigid in Israel, however, a competing pension plan that tracks the S&P500 has recently been introduced to the market - 70% S&P and the remaining 30% designated bonds which are guaranteed at a return of 4.86% (something the government here stands behind). This is made up of mutual funds and future contracts. The management fees for the pension plan current stand at 0.05%.

Bearing in mind that I also hold a global tracker in my personal portfolio, do you think I'm making a mistake by investing my pension in a track following the S&P500? Whilst the S&P500 does benefit from foreign revenue, I do fear that it isn't overly diversified and only includes the top 500 companies - hence my decision to invest in a global tracker for my personal portfolio.

My split is as follows:
Personal Portfolio - $207,158 (monthly contribution $1,932)
Pension - $116,471 (monthly contribution $1,118)
TedSwippet
Posts: 3342
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Balancing Pension with Personal Portfolio - Israel

Post by TedSwippet »

Welcome.
TLV_London wrote: Wed Jan 13, 2021 3:15 pm Would love to hear our feedback on my current situation. I'm 44 years old and live in Tel Aviv, Israel. I currently hold a 2 ETF fund ETF portfolio (80% Global tracker and 20% Bond).
...
Bearing in mind that I also hold a global tracker in my personal portfolio, do you think I'm making a mistake by investing my pension in a track following the S&P500?
Can you easily switch your 80% in a global tracker to something that covers world markets but excluding the US? That would allow you to balance against a US weighted pension holding. The 0.05% cost looks decently low, and the guaranteed bond return also appealing.

One final thought. Do you hold US domiciled ETFs currently, or non-US domiciled ones? For you, non-US domiciled may be more tax efficient (lower US tax rate on dividends, and no threat of US estate tax on holdings above $60k). Potentially a bit more complexity if you want ex-US holdings, though. There is no readily available non-US domiciled single ETF equivalent to Vanguard's US domiciled VXUS.
Topic Author
TLV_London
Posts: 9
Joined: Sun Oct 04, 2020 11:40 pm

Re: Balancing Pension with Personal Portfolio - Israel

Post by TLV_London »

Hi - thanks for your response. My global trackers are a mixture of VWRD/VWRA and iShares MSCI ACWI UCITS ETF so both non US domiciled.

I thought about your suggestion but am beginning to wonder if it's really necessary to exclude the US from my global tracker. At the end of the day, if US companies stop performing, the US dominance in the global tracker will gradually start to decrease, allowing for other countries to take its place. In addition, the historical returns for VXUS are pretty poor....
TedSwippet
Posts: 3342
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Balancing Pension with Personal Portfolio - Israel

Post by TedSwippet »

TLV_London wrote: Thu Jan 14, 2021 12:44 am I thought about your suggestion but am beginning to wonder if it's really necessary to exclude the US from my global tracker. At the end of the day, if US companies stop performing, the US dominance in the global tracker will gradually start to decrease, allowing for other countries to take its place. In addition, the historical returns for VXUS are pretty poor....
You're right that a good 50-60% of the global tracker is from US stocks, so these will dominate its performance. Also, markets tend to be somewhat correlated, at least across shorter terms, so if the US drops it's likely that other elements of a global tracker will also drop, although by different amounts.

As for looking at VXUS results, don't forget that you are viewing these in USD, so you are seeing not just some non-US market "underperformance" (relative perhaps to US "outperformance"), but also the effect of a strengthening USD relative to other countries. So the VXUS's USD performance graph isn't a true reflection of non-US stock returns.

Anyway, I don't think anyone can really say whether a US bias would be a mistake or not. Knowable only in hindsight. Personally, I might look at switching some of the global tracker, to move things closer to global market cap overall. Perhaps a shift of 50% of it, as a compromise. Provided there is no significant tax hit from doing so that is; otherwise, gradual shift through new contributions.

But then, I'm not you and you are not me, and it's a personal decision. For what it's worth, as a UK investor I've stuck to a UK bias for a decade now, and that has been a poor choice for the entire period, so maybe you shouldn't listen to me at all!
Topic Author
TLV_London
Posts: 9
Joined: Sun Oct 04, 2020 11:40 pm

Re: Balancing Pension with Personal Portfolio - Israel

Post by TLV_London »

You inspired me to analyse the entire portfolio - equity and geo share with the new S&P500 pension track. You're absolutely right in what you say and if I do go ahead with the transfer, I will definitely need to start reducing my US exposure by buying exUS if I want to be inline with the global benchmak.

Thanks a lot for helping me look into things at a deeper level!
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