4-minute Money Ideas

Are Foreign Investments Good for Your Retirement Plan? By Douglas Goldstein, CFP® - helping olim handle their U.S. investments from Israel Do you want to minimize risk in your retirement accounts? If so, consider diversifying your holdings to include foreign investments. Investing internationally may boost your returns and minimize risk, as you’re “geographically diversified” and not relying on any single country’s economic performance. Geographic diversification can be achieved by buying foreign stocks, ETFs, mutual funds, REITs, and foreign corporate and/governmental bonds. Saving your pension in one country and keeping your assets in another country is another form of geographic diversification. If you want to know more about minimizing risk in retirement planning, download The Retirement Planning Book, at: Profile-Financial.com/rpb Examples of global investment opportunities: Owning Foreign Stocks: Most major stockbrokers can help you buy individual foreign stocks, taking care of any currency conversions

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 volatilit

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. Time 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 endin

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 fro

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? Since the ETF encompasses many different assets divided into shares, it has built-in diversification. There are different types of ETFs specializing in different sectors, so you can choose the type of ETF that suits you. As ETFs are a marketable investment, they can be traded throughout the day. ETFs tend to cost less than mutual funds because they aren’t actively managed, and so their fees are lower. What yo

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 sus

Can Bonds Increase Income from Your Investment Portfolio? By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel A retired widow met with me last week to discuss how to increase income from her investment portfolio. I reviewed her account and made some suggestions for restructuring her investments to get predictable income. We spoke a lot about bonds. Here’s why:   Bonds pay a set amount on a fixed schedule, so if you are looking for predictable income, bonds may work for you. A bond’s interest rate is often commensurate with the level of risk; if you buy a “high-yield bond” (or “junk bond”) you get a higher interest rate than if you buy a high-quality bond. A well-designed portfolio incorporates different types of bonds in order to diversify risk and maximize returns, and it reflects the risk tolerance of the client.   Build a bond ladder Another way to diversify risk while creating a predictable income stream is to use a technique called “bond laddering.”

What should you do if you receive a lump sum, such as an inheritance, legal settlement, or pension payment? Should it be invested for growth or for income? Invest for growth A “growth investment” tries to increase the amount of money you have. Growth investments often entail some level of risk, so if you plan on using the money in the short term, you should consider a more conservative investment. If you hope to grow the lump sum to be able to meet a long-term goal, then consider the amount of risk you can take. What would happen if you lost part or all of the principal? Growth investments have the plus of potentially increasing the real value of your money over time, since growth investments – like the stock market – could outpace inflation. If you don’t need the extra funds to live now and can tolerate market volatility (which means you could lose money), growth investments may be the appropriate place for your lump sum. Invest for income An “income investment” usually has a lower risk level and pays regula

The Best Way to Update Investments in an Inherited IRA By Douglas Goldstein, CFP®, - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel If you inherit an IRA (Individual Retirement Account), you must be aware of the regulations concerning transferring the account to you, the “beneficiary.” Apart from the technical requirements for processing the account, which a financial advisor should be able to handle, some people also feel a moral responsibility. When a client recently called me about an inherited IRA, he said, “I would like to sell some of the stocks in the account. Am I legally allowed? And if I do, am I being disloyal to my father’s memory by getting rid of what he bought?” Personal finance is personal This client is far from unusual in the loyalty he feels to his benefactor. Many beneficiaries feel as if they are betraying the person who left them the account if they change anything in it. But that is far from being the case. When choosing investments, you need to have your

What Should You Do With Money in the Bank? By Douglas Goldstein, CFP®, - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel   Recently, a couple asked me what they should do with their money in the bank. I hear this question quite often. However, as every individual investor’s situation and circumstances are different, there is no standard response that fits everyone. To figure out an answer for this particular couple, I asked:   What’s the intended purpose of this money? The couple answered that it was the sum of their retirement savings that they had accumulated over the past 18 years. They had over $650,000 in bank deposits, carefully spread out among several U.S. banks so that they were fully insured by the FDIC (Federal Depository Insurance Corporation). However, they also admitted that they were earning next to nothing in terms of interest.   “So for almost two decades you’ve been keeping money in the bank, and you’re thinking of leaving it there for another fifteen years unti

How to Overcome the Challenges of Receiving an Inheritance By Douglas Goldstein, CFP®, - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel What would be your first reaction if you received an inheritance? When a client received an inheritance from her elderly aunt, she told me: “I thought she was going to leave everything to my cousin. I never imagined in my wildest dreams that any of it would come to me. Although the extra money will come in useful, I don’t know what to do with it! I spend my nights worrying about whether I should invest it or if I can spend any of it.” You are not alone This client’s anxiety about what to do with an inheritance is not unusual. Strange as it may sound, many people who receive an inheritance or windfall worry about losing their new assets, and this fear paralyzes them. Other people go to the opposite extreme and spend it all without a second thought. Another common problem that inheritors face is when other people somehow find out about their new w

Avoid This Portfolio Management Mistake By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel   At an initial meeting, a new retiree told me, “I’m not really sure what stocks I own.” When I asked how he had put together his portfolio, he explained that some of the positions came from an inheritance, while others… “Well, I’m not really sure,” and a couple of stocks were recommendations from “this guy who sits next to me in shul.” When I asked him if that guy still thinks they’re good stocks, the gentleman admitted, “I don't know. I don't go to that shul anymore!”   This conversation is a superb illustration of a huge mistake that people often make with their investments: following a “hands-off approach to investing” – in other words, not having a clear strategy and buying/selling stocks without oversight. They don’t give much thought to important issues, such as setting goals, diversification, and risk management. I understand that not everyone wants to be i

What Happens to Your Retirement Plans When You Make Aliya? By Douglas Goldstein, CFP®, - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel   As a Certified Financial PlannerTM sitting in Jerusalem, I work mostly with American immigrants who keep the majority of their assets in American investment accounts. When a recent oleh listed the various retirement plans that he held in the United States, he mentioned: Individual Retirement Account (IRA) 401(k) retirement plan from an old employer 403(b) plan from when he taught in a school. Although he had some upcoming financial obligations, most of the money was intended for long-term investment.   He told me that his biggest financial problem was that his investments and money “were all over the place,” and with his busy schedule he was unable to keep track of what was going on. Simplify! Although each of the accounts came from different sources, now that this oleh was no longer working in America and contributing to the retirement plan

4 Points to Remember at the End of the Financial Year   By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel   The end of the financial year is a good time to conduct an annual review of your financial situation. If your savings plan, or the market as a whole, has swerved off course, now is an opportune time to adjust accordingly.   Saving goals Are your long-term and short-term goals the same as they were last year? If your goals are both time and dollar specific, it’s easy to tell whether you are on target to meeting them.   Does the saving component of your financial plan include tax-deferred pension plans?  Review the details of your pension plan to determine if the division of funds among the saving and insurance components of the plan is still appropriate for your current stage in life.   Asset allocation Once you’ve saved, don’t yet breathe a big sigh of relief. Now comes the hard part – making sure the funds are invested properly. Make sure your in

What Happens When You File U.S. Taxes From Abroad? By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel   American citizens living overseas often need to file U.S. taxes from abroad, even if they don’t owe any money. If you live in Israel, gathering the information you need to complete your taxes from Israeli banking and financial institutions can be tricky since foreign institutions don’t produce 1099 forms. So what is an American living abroad to do?   Dangers of investing overseas The IRS requires American citizens to disclose information about their investments, no matter where they are held.   The end-of-year statements from your Israeli bank or investment company don’t provide the same information that appears on a standard 1099 – and probably won’t be in English! This means that when filing your American taxes, you (or your accountant) will need to convert currencies, tax brackets, and other information in order to extrapolate the information the IR

Did You Get an Unpleasant Surprise From Your Stateside Broker? By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel   When your stateside broker sent you a surprise letter, did it contain good news? Many Americans in Israel (and non-Americans, too) have received a letter from their U.S. investment firm or bank informing them that they need to close out their account. In some cases, the brokerage firm does not shut down the account, but limits its services because the client no longer lives in the United States.   10-step solution I recently produced a toolkit, which you can download for free, which answers the most common questions about handling American accounts from Israel. One of the most popular sections of the toolkit is called, “10 Steps to Opening a U.S. Brokerage Account.” Get this great resource at www.Profile-Financial.com/Toolkit.   A quick and easy solution Though some investment problems may be insurmountable, don’t worry if you get a letter

How to Grow Your Money Twice as Fast: Save More By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel What’s the best way to save, and how much money should you save?   As a panelist on the “Money Tree Investing Podcast,” I recently answered a question about how to invest monthly savings. Here’s what I advised:   Save more Before discussing specific investment tactics, I suggested doubling the amount of money the listener was saving. My experience as a financial advisor has taught me that many folks don’t save as much as they can. One common rule of thumb is to save 20% of your income. If you reach that level or more, you’re well on your way to building serious wealth.   Choose investments carefully There are two principles that every investor should follow:   Keep in mind your time frame: Long-term investors can be more aggressive than short-term investors because they have time on their side to recover from potential losses. Though past performance is no

If you worked in America before your move to Israel, chances are you have an IRA account. What should you do with this American account if you live an ocean away?   Should you transfer your retirement accounts to Israel? An IRA is an “Individual Retirement Account.” There are several categories of IRA, including traditional, Roth, Simple, and SEP IRAs. The main differences between them relate to when taxes are paid. (Check with your accountant about your own situation since this article does not constitute tax advice.)   Another common type of retirement account in the United States is the 401(k), which is a “defined contribution” plan. Contributions to the account are deducted from your paycheck and you only pay tax on them when you make a withdrawal. Sometimes contributions are matched by employers, which make it an especially sweet way to save. However, when you work in Israel, you normally cannot continue contributing to the plans (unless you are employed by an American company). However, if you had such

Should Your American Assets Stay in the United States?  By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel When making aliya, many olim move their American assets to Israel and convert all their dollars to shekels. However, there is a strong case to be made for leaving your dollars in America. Here’s why: Efficiency U.S. securities markets may still be the most efficient, and individual-investor friendly in the world. You can have a diversified basket of global assets within a “regular” U.S. brokerage account, and do it cost effectively. America has an established market, with steady government regulations and investor protection programs like SIPC, protecting the investor and his assets. Diversification A U.S. brokerage account can host a variety of investment vehicles in American or global companies. Furthermore, you can have checks, debit cards, and other instant access to your funds, even if you are an ocean away. Mutual funds Mutual funds are an eas

Why Gender Bias is a Good Thing in Financial Planning By Douglas Goldstein, CFP® - helping olim handle U.S., IRA, investment, and brokerage accounts from Israel One area where gender bias isn’t discussed enough is in financial planning. Financial planning for women must be different than for men. What do women need to know when planning their financial future? Women work fewer years than men Even though men are more involved with domestic duties than in previous generations, typically women take time off after childbirth more often than men take paternity leave. When children are young, mothers are more likely than fathers to work part-time or to stop working entirely for a few years. Women’s pension savings tend to be smaller than men’s, due to fewer and shorter work years.  Compound this with the difficulty of advancing in careers due to working part-time or non-consistently, and the result is that many women have less money saved than their male colleagues. Women live longer Statistically, women tend to li