I've been reading this forum for awhile and finally decided to register.
I am a 28 years old based in Israel.
Some financial background:
- Single, no dependents, no debts
- I earn 30,000$ annually of which 85% is saved each year (hyper-saving mentality). No other sources of income.
- I saved 125,000$ and this money is lying in a bank deposit earning pennies for the last few years.
- I own a small apartment in the Tel Aviv region roughly estimated at 250,000$. No mortgage.
My objective is to invest the available lump sum in a way that will preserve its purchasing power and hedge it against inflation risks. Harry Browne's method seems to be suitable for this objective, and so I've decided to try and implement the PP with Israeli based securities. I would very much like to hear your comments and insights.
Stocks:
I want to allocate 20% of stocks to a local ETF that tracks the performance of NASDAQ 100 (33%), S&P 500 (34%) and Russel 2000 (33%) as measured by Israeli Sheqel (ILS) with no exposure to US dollar. I understand that foreign currencies are not recommended since they are said to add unnecessary volatility to the PP and that one should invest in the currency by which one consumes. Expense rate for this ETF is 0%.
While I understand Browne supported owning basically local stocks I don't feel secure enough to invest in the Israeli market. The government pulled some strange moves that hurt the market (including Israel's entrance to the OECD and raising of capital gain tax to 25%) and long term geopolitical outlook is bad. There is a local ETF of the Tel-Aviv 100 index with 0% expense rate which could be no more than 5% of the stock allocation.
I'm worried that I might be missing some significant diversification, but other ETF's are simply too expensive in terms of expense rates or add exposure to foreign currencies (euro, pound, usd) which I've been told to avoid.
Bonds:
This one is simpler. There is a long term bond offered by the Bank of Israel which is set to mature in January 2042. Annual Interest is 5.52%. It suits Browne's
another option is to buy an ETF (0.4% expense rate) that tracks the performance of all intermediate (5-10 year) nominal bonds.
Gold:
The hardest dilemma. Owning physical gold in Israel is problematic. Imported gold bullion coins are stamped with 17% VAT which makes them a very poor investment. There are golden Sovereigns from the British Mandate of Palestine era in circulation but buying those involves dealing with shady gold traders who charge premiums of up to 10% of the gold price. The availability also fluctuates considerably. And then there's the issue of storing it somewhere and paying for it.
With Israeli gold ETFs -there are 4 of those, and all of them simply track the daily performance of gold bullion as measured by the U.S. Dollar fixing price for delivery in London. Most charge an expense rate of 1% rate except one that charges 0.8%. There is only one ETF that tracks the London AM fix in ILS, and this one seems like the most likely, if not optimal, candidate for the PP.
I should mention there is another actively managed Gold mutual fund but the expense rate are outrageous (2.9%) so I did not even bother looking.
Cash:
Will not try to go for the high yield here but rather aim for the Israeli equivalent of a total t-bill index fund that is expected to gain around 2% each year.
Summing up, this is what I came up with:
25% Stock:
- 5% Tel Aviv-100 index fund (0% Expense Rate)
- 20% Israeli rough equivalent of a US TSM index fund (S&P, NASDAQ, RUSSEL), measured in ILS (0% expense rate)
25% Bonds:
- Bank of Israel 01/2042 bond, 5.5% annual interest (0% expense rate)
25% Gold:
- Israeli index fund tracking gold price according to the London AM Fix measured in ILS (1% expense rate)
25% Cash:
- Bank of Israel T-bills index fund (0% expense rate)
What do you guys think? Can I improve this, and are my worries justified?
