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.
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?
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:
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.