A few times now, friends have come up to me and said they have some spare money and would like to invest it for the long term. Great news! These friends have the right attitude. The earlier you begin investing, the longer your money can simmer in the cholent pot of wonder, which you will one day open to find not just the perfect cholent with exactly the right consistency, but more cholent than you ever put in in raw ingredients*, because, as mentioned, this is a wondrous cholent pot powered by compound interest. So don’t put off reading this and other information for too long, because (as the cliché goes) time in the market beats timing the market.
Great news number two! You are already investing, assuming you’re working. Mandatory pensions mean you and your employer are putting away about 2.5x your monthly salary each year into a long term savings pot. If you have a Keren Hishtalmut you could be saving an additional 1.2x your monthly salary each year. Because these are substantial amounts, I always recommend checking that you’ve got these set up in the optimal fashion** first.
If you still have spare cash lying around that is just depreciating away in a bank account paying 12 agorot in interest a year, then there are basically three general things you need to think about:
- What kinds of assets, securities and funds you want to invest your money in
- Which platform / brokerage you will use to buy and sell these
- Tax considerations (and tax structures)
Theoretically these three are entirely independent considerations, but in practice they often cross over and restrict each other. For example, if you invest in a Kupat Gemel LeHashka’a, you can’t freely trade securities in the same way as you can in a regular brokerage account; and foreign-managed funds are taxed differently from domestically-managed funds. We shall see some more examples in the following articles.
Buying stocks or index fund units is like buying groceries at the supermarket. You need to separately figure out what groceries you want, and find a supermarket that sells those groceries – though generally, most supermarkets will sell most of the common brands and categories. If you want to buy Sugat Rice, you can’t buy it wholesale from Sugat, as they’ll only deal with large retailers for reasons of scale. You buy it from Rami Levy or Shufersal or the Makolet. So too, if you want to buy a particular fund, you have to find a brokerage firm through which to buy it – this might be a bank or one of the other brokerage firms. The different brokerages will have different fees and different ranges of products.
This series of articles will cover each of the three considerations above – choosing funds; choosing a broker; and tax considerations – specifically for residents of Israel. This series probably won’t apply very well to you if you’re a US citizen and therefore have additional burdensome tax considerations that I am not familiar with, although I hope it will still be useful to you.
*Certainly more than your friends who ate the potatoes while they were still raw because they didn’t believe capitalism will still exist by the time they retire.
**By “optimal fashion”, I mean: low fees; a suitable investment track; ensuring money is not wasted on insurance components which you don’t need (e.g. if you don’t have dependents, you can probably waive on dependents’ insurance); checking that the deposits in the annual report match the deposits on your payslip; and generally just knowing where your money is and what it’s doing.