[Israel] Investment plan questions

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Topic Author
Mr.Tombarson
Posts: 7
Joined: Sat Oct 26, 2019 12:37 pm

[Israel] Investment plan questions

Post by Mr.Tombarson » Thu Oct 31, 2019 7:52 am

Hi all,

I'm new to the forum and to investing. I'm learning the subject for few months.
We are a couple about 30 years old. With no children for now, maybe next year. Our goal is to be able to be financial independent or partially independent in 25 years. Currently we save about 50% of our income.

Country of Residence: Israel
International Lifestyle: no
Currency: USD (my bank account has NIS I have to convert to USD)
Emergency funds: yes
Debt:.No
Age: couple, 30 years old.
Desired Asset allocation: 70% stocks 30% bonds (Israeli bonds). 35,000$ initial investment. Quarterly contribution of about 4,500$.
We are still debating what ETFs to buy, we want a global diversification, accumulating ETFs and ETFs domiciled in Ireland. Since the ETFs in Israel are mostly synthetic and have high TER we want to convert our ILS to USD and buy ETFs that are not traded in Tel-Aviv exchange.
We are thinking about the following:

Portfolio 1:
70% IWDA - iShares Core MSCI World UCITS ETF USD (Acc) 0.2% TER
10% EMIM - iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc) 0.18% TER - traded in Israel
10% REET - iShares Global REIT ETF 0.14% TER
10% WMSL - iShares MSCI World Small Cap UCITS ETF 0.35% TER
______________________________________________________________
Questions:
1. I see that the same ETF is traded in different places. How should I choose where to buy it? (Say London or Switzerland)?
2.What do you think about the portfolio? Does it correspond to our goals?
3. In order to buy the ETFs I need to convert my currency to USD, then buy it aboard which is relatively costly. Do you think that 4 ETFs is too much for the beginning?
4.Basically I choose this allocation since this way I’m exposed to small value and real-estate. I guess I can do with only 85% IWDA and 15%EMIM. How can evaluate the difference
5. I couldn’t find where the REET ETF is domiciled. Is it also located in Ireland and accumulating?

Thank you for reading :)

Schlabba
Posts: 154
Joined: Sat May 11, 2019 9:14 am

Re: [Israel] Investment plan questions

Post by Schlabba » Thu Oct 31, 2019 1:32 pm

Mr.Tombarson wrote:
Thu Oct 31, 2019 7:52 am
I'm new to the forum and to investing. I'm learning the subject for few months.
We are a couple about 30 years old. With no children for now, maybe next year. Our goal is to be able to be financial independent or partially independent in 25 years. Currently we save about 50% of our income.
Welcome! With a savings rate of 50% you could reach financial independence in like 17 years (https://www.mrmoneymustache.com/2012/01 ... etirement/). So your savings rate is on track!
Mr.Tombarson wrote:
Thu Oct 31, 2019 7:52 am
Questions:
1. I see that the same ETF is traded in different places. How should I choose where to buy it? (Say London or Switzerland)?
2.What do you think about the portfolio? Does it correspond to our goals?
3. In order to buy the ETFs I need to convert my currency to USD, then buy it aboard which is relatively costly. Do you think that 4 ETFs is too much for the beginning?
4.Basically I choose this allocation since this way I’m exposed to small value and real-estate. I guess I can do with only 85% IWDA and 15%EMIM. How can evaluate the difference
5. I couldn’t find where the REET ETF is domiciled. Is it also located in Ireland and accumulating?
2. It seems to be just fine. Do you want to consider more globally diversified bonds? Standard would be without REET, but it's up to you.
3. How does converting your currency have anything to do with howmany ETF's you're buying? 4 ETF's seem very manageable.
4. You can't evaluate the difference. You can only evaluate the past performance, but it says nothing about the future. It can either outperform or underperform. There is no way to tell, the choice is yours :happy.
5. REET is not a "UCITS" (https://www.bogleheads.org/wiki/EU_inve ... and_PRIIPs) and I found it is listed on the NYSE. I think you should replace/remove it.

But all in all you will be fine. You can read some more (including sample portfolios) here: https://www.bogleheads.org/wiki/EU_investing. You basically already have something very similar to a sample portfolio so I don't think you will get a lot of comments.
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

DJN
Posts: 510
Joined: Mon Nov 20, 2017 12:30 am

Re: [Israel] Investment plan questions

Post by DJN » Thu Oct 31, 2019 8:20 pm

Hi,
your proposed distribution of equities doesn't exactly follow the actual global breakdown. Maybe check some of the indices out to understand that more accurately. But in any case its probably fine the way that you have proposed, if you are already exposed to RE and small caps then why bother with them?
Maybe have a further think about your bonds, you don't give any details, but duration and quality matters.
DJN
Yah shure

Topic Author
Mr.Tombarson
Posts: 7
Joined: Sat Oct 26, 2019 12:37 pm

Re: [Israel] Investment plan questions

Post by Mr.Tombarson » Fri Nov 01, 2019 5:22 am

Thanks for the comments!

Regarding bonds allocation, as I said I'm planning to invest in Israeli bonds.
I want my bond part of the portfolio to be less bumpy and win the inflation (maybe just a wish?).
Interest rates in Israel are low so I think the interest rates can only go up eventually – which is why I am thinking about the following short term bonds:
50% 2-5 years with fixed interest.
50% 2-5 years which is indexed to costumer price index (CPI) (I think this is the Israeli equivalent to US TIPS).
Since I'm not sure if to trust the government with the rates of the indexed bond I'm also thinking about 100% 2-5 fixed interest. What do you think?
Schlabba wrote:
Thu Oct 31, 2019 1:32 pm
REET is not a "UCITS" (https://www.bogleheads.org/wiki/EU_inve ... and_PRIIPs) and I found it is listed on the NYSE. I think you should replace/remove it.
Well, it will take time for 10% of my portfolio to reach 60,000$ and I couldn’t find global REIT that domiciled in Ireland that is why I'm thinking about buying REET anyway.
Schlabba wrote:
Thu Oct 31, 2019 1:32 pm
how does converting your currency have anything to do with how many ETF's you're buying? 4 ETF's seem very manageable.
I'm still working on finding the optimal broker for me, but it seems like that for out of Israel ETFs I must pay 1 cent for each share with minimum of 8$ (which means I will pay the minimum each time) also, they take 0.1% conversion commission. Currently I have 3 ETFs that are out of Israel.
DJN wrote:
Thu Oct 31, 2019 8:20 pm
your proposed distribution of equities doesn't exactly follow the actual global breakdown. Maybe check some of the indices out to understand that more accurately. But in any case its probably fine the way that you have proposed, if you are already exposed to RE and small caps then why bother with them?
I meant that I want to be exposed to RE and small-cap via the proposed portfolio.
I looked at VT distribution according to Morningstar X-ray:
76% large cap
18% mid cap
6% small cap
I couldn’t find the exact ETFs I want there but for my portfolio it will be: (REET is excluded)
79% large cap
11% mid cap
10% small cap

Do you think I need to try to mimic the VT distribution to the 1%? (Why?)

Thanks again

Valuethinker
Posts: 38987
Joined: Fri May 11, 2007 11:07 am

Re: [Israel] Investment plan questions

Post by Valuethinker » Fri Nov 01, 2019 8:25 am

There is the Argentina problem. The government lies about the inflation rate, and then prosecutes (for defaming the Minister of Finance) anyone who sets up a rival inflation rate measure. The Economist solves this problem by reporting an index created from prices online, gathered by a company in New York - thus avoiding legally implicating any Argentine resident.

That seems extreme. I am not aware of any broad criticism of the Israeli government for its manipulation of inflation.

If we were talking TIPS, where the US inflation rate is calculated by an independent government body (Bureau of Labor Statistics), not under the authority of the US Treasury, then holding 50% TIPS bonds is a good strategy. ST TIPS have a high correlation with inflation.

Your bond position is low risk. A sensible alternative (which would expose you to more currency risk) would be half Israeli govt bonds, half US Treasury bonds.

Although there is the risk of rising interest rates, the reality is that in the long run holding longer term bonds has produced higher returns (in the last 40 years interest rates have been falling across the world, so you would expect that; however the slope of the yield curve also helps to ensure that). The "sweet spot" has been roughly around 7 years (so 5 - 10 year maturities) where the yield curve normally slopes downwards (really below the 5 year maturity).

So for a long term investor, you want to hold long term debt. Even if that means higher volatility in the short run.

At this point I shrug, because calling that moment (when the yield curve goes back to a normal slope) is impossible even for the professionals.

Topic Author
Mr.Tombarson
Posts: 7
Joined: Sat Oct 26, 2019 12:37 pm

Re: [Israel] Investment plan questions

Post by Mr.Tombarson » Sun Nov 03, 2019 1:49 am

Valuethinker wrote:
Fri Nov 01, 2019 8:25 am
So for a long term investor, you want to hold long term debt. Even if that means higher volatility in the short run.
I see your point, I'm thinking about:
30 % total Israel government bond market index (6.9 years maturity)
30% 2-5 years CPI indexed government bond (4 years maturity)
40% 2-5 years fixed interest government bond (4 years maturity)

Although it seems like a lot of funds I want to favor short-term bonds so the road would be smoother. At this point I don't want to own US bonds (maybe later when I have time to find a good reason to have them). What do you guys think?

This week I'm going to survey the large Israeli brokers to find the best deal. I'm still thinking about maybe use the services of IB (which would be about 300 USD cheaper per year) but it has two major short comings: first I have to report to the Israeli IRS and second I can't buy funds that are traded in the Tel-Aviv Exchange - which means I should find an Israeli broker to trade the Israel bonds funds or I have to buy different bonds (US probably).


Thanks again

Valuethinker
Posts: 38987
Joined: Fri May 11, 2007 11:07 am

Re: [Israel] Investment plan questions

Post by Valuethinker » Sun Nov 03, 2019 3:40 am

Mr.Tombarson wrote:
Sun Nov 03, 2019 1:49 am
Valuethinker wrote:
Fri Nov 01, 2019 8:25 am
So for a long term investor, you want to hold long term debt. Even if that means higher volatility in the short run.
I see your point, I'm thinking about:
30 % total Israel government bond market index (6.9 years maturity)
30% 2-5 years CPI indexed government bond (4 years maturity)
40% 2-5 years fixed interest government bond (4 years maturity)

Although it seems like a lot of funds I want to favor short-term bonds so the road would be smoother. At this point I don't want to own US bonds (maybe later when I have time to find a good reason to have them). What do you guys think?

This week I'm going to survey the large Israeli brokers to find the best deal. I'm still thinking about maybe use the services of IB (which would be about 300 USD cheaper per year) but it has two major short comings: first I have to report to the Israeli IRS and second I can't buy funds that are traded in the Tel-Aviv Exchange - which means I should find an Israeli broker to trade the Israel bonds funds or I have to buy different bonds (US probably).


Thanks again
I don't see anything wrong with your proposed bond allocation. It won't make much difference in the long run.

megatron1911
Posts: 9
Joined: Fri Mar 29, 2019 2:52 am

Re: [Israel] Investment plan questions

Post by megatron1911 » Sat Nov 09, 2019 3:47 am

Mr.Tombarson wrote:
Sun Nov 03, 2019 1:49 am
This week I'm going to survey the large Israeli brokers to find the best deal. I'm still thinking about maybe use the services of IB (which would be about 300 USD cheaper per year) but it has two major short comings: first I have to report to the Israeli IRS and second I can't buy funds that are traded in the Tel-Aviv Exchange - which means I should find an Israeli broker to trade the Israel bonds funds or I have to buy different bonds (US probably).
If memory serves me well, there are at least a few Israelis using IB here.

There is at least one IB reseller in Israel, but one should know it's domiciled in Cyprus.

And I don't understand what you mean by having to "report to the Israeli IRS", because you'd have to do it anyway, though it might be easier to do so with a local brokerage (reporting). But I don't think this should be a very complicated matter with a "boring" portfolio as yours.

Pinkllama
Posts: 19
Joined: Sat Jan 06, 2018 10:42 pm

Re: [Israel] Investment plan questions

Post by Pinkllama » Sat Nov 09, 2019 6:46 pm

The OP mentioned that they couldn’t find an Ireland domiciled global REIT.
Check out HSBC’s HPRO & iShares IWDP
There are probably others, but those are the two I know.

imperia
Posts: 192
Joined: Tue Feb 21, 2017 6:31 am

Re: [Israel] Investment plan questions

Post by imperia » Sat Nov 09, 2019 7:37 pm

SPDR Dow Jones Global Real Estate UCITS ETF

Topic Author
Mr.Tombarson
Posts: 7
Joined: Sat Oct 26, 2019 12:37 pm

Re: [Israel] Investment plan questions

Post by Mr.Tombarson » Sun Nov 10, 2019 5:54 am

megatron1911 wrote:
Sat Nov 09, 2019 3:47 am
Mr.Tombarson wrote:
Sun Nov 03, 2019 1:49 am
This week I'm going to survey the large Israeli brokers to find the best deal. I'm still thinking about maybe use the services of IB (which would be about 300 USD cheaper per year) but it has two major short comings: first I have to report to the Israeli IRS and second I can't buy funds that are traded in the Tel-Aviv Exchange - which means I should find an Israeli broker to trade the Israel bonds funds or I have to buy different bonds (US probably).
If memory serves me well, there are at least a few Israelis using IB here.

There is at least one IB reseller in Israel, but one should know it's domiciled in Cyprus.

And I don't understand what you mean by having to "report to the Israeli IRS", because you'd have to do it anyway, though it might be easier to do so with a local brokerage (reporting). But I don't think this should be a very complicated matter with a "boring" portfolio as yours.
Everything is correct. I will start with a local broker and later maybe I will change to IB.

Comparing the REIT ETFs, REET seems to be the biggest, the cheapest and the most d diverse one. I will stick with it.
Since I'm not seeing 10% of my portfolio reaching 60K$ soon, I don't think it is a big problem.

Thanks a lot :)

Topic Author
Mr.Tombarson
Posts: 7
Joined: Sat Oct 26, 2019 12:37 pm

Re: [Israel] Investment plan questions

Post by Mr.Tombarson » Mon Nov 18, 2019 12:33 pm

Hi guys,
So I have a new independent investing account :)
I made up my mind in regards to the ETFs and portions.
The only things I still not sure is whether or not to buy my ETFs at LSE (due to brexit).
I intend to buy ishares ETFs in USD.

I can buy SWDA in Switzerland and EIMI is traded in Tel-Aviv but the only WSML USD version is in LSE.

Is there any advantage to buy one ETF in EUR?

I know nobody knows anything as a fact but, what can go wrong in case of brexit? Am I being peranoid?

Thanks

DJN
Posts: 510
Joined: Mon Nov 20, 2017 12:30 am

Re: [Israel] Investment plan questions

Post by DJN » Mon Nov 18, 2019 1:10 pm

Mr.Tombarson wrote:
Mon Nov 18, 2019 12:33 pm
The only things I still not sure is whether or not to buy my ETFs at LSE (due to brexit).
Hi,
I cannot remember if you confirmed what bond ETF you were going to go with? Recently iShares delisted their AGGH global bond from LSE due to Brexit. In fact there was no problem with IBKR they just moved AGGH to EUNA on another exchange. However I have some AGGH with deGiro and they charged 25 euros to transfer.
DJN
Yah shure

Topic Author
Mr.Tombarson
Posts: 7
Joined: Sat Oct 26, 2019 12:37 pm

Re: [Israel] Investment plan questions

Post by Mr.Tombarson » Mon Nov 18, 2019 1:47 pm

My bonds to be are all Israeli bonds and are traded in Tel Aviv.
So worst case, I will have to transfer my ETFs to another exchange?

megatron1911
Posts: 9
Joined: Fri Mar 29, 2019 2:52 am

Re: [Israel] Investment plan questions

Post by megatron1911 » Tue Nov 19, 2019 5:27 am

Mr.Tombarson wrote:
Mon Nov 18, 2019 12:33 pm
So I have a new independent investing account :)
So, who did you go with?
Mr.Tombarson wrote:
Mon Nov 18, 2019 12:33 pm
what can go wrong in case of brexit? Am I being peranoid?
No reason to be paranoid at all regarding this particular matter. Nothing should change for you, no matter what. Even as a EU citizen/resident not much will change regarding the functioning of ETF trading. The de-listings might have occured due to low trading activity (which in turn might have been triggered by Brexit fears?). Like lots of ETFs all over the place have been liquidated recently due to low AUM. But just skip LSE and buy somewhere else.

Mr.Tombarson wrote:
Mon Nov 18, 2019 12:33 pm
Is there any advantage to buy one ETF in EUR?
Regarding the ETF itself: no. It is exactly the same ETF. So it depends on what currency you have, how much it would cost to convert, what your base currency is... The main advantage of the LSE-listed ETF is its liquidity there.

Topic Author
Mr.Tombarson
Posts: 7
Joined: Sat Oct 26, 2019 12:37 pm

Re: [Israel] Investment plan questions

Post by Mr.Tombarson » Tue Nov 19, 2019 8:00 am

Hi,
megatron1911 wrote:
Tue Nov 19, 2019 5:27 am
So, who did you go with?
I am using a local broker since I am a beginner and it will be easier. maybe in a few years I will move to IB.


Thanks for your input! :)

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