Gyroscopic Investing

Finally took action today and invested around 20% of my wealth according to the PP strategy.

I'm 28 and this is the first time I actually invest, so this is exciting for me.

I tried to find a good, simple way of implementing the strategy as a citizen of a small country.
After thorough research I've reached the following allocation:

20% - VT - Vanguard Total World Index ETF (USD) - prosperity hedge, diversified as possible, ILS devaluation hedge
5% - Tel Aviv 25 Stock Exchange Index (ILS)  - slight tilt towards domestic stocks
25% - ZGLD  - ZKB Gold ETF (USD) - Inflation hedge, ILS devaluation hedge
25% - Bank of Israel Nominal Bond (5.5%), January 2042 (ILS) - Deflation hedge, USD devaluation hedge
25% - Bank of Israel Zero Coupon 1 year Bond ETF (ILS) - Highly liquid, small yieald

This makes the portfolio 45% USD and 55% ILS (Israeli Sheqels), which I reckon is fairly balanced. Do you think I should write a put option as an additional dollar hedge?

Macroeconomic factors, Israel:
GDP: 248 billion USD
Growth: 4.85%
Population: 7.9m
Interest rate: 1.75%
Inflation rate: 0%
Unemployment rate: 6.5%
Currency: 1 USD = 3.68 ILS

Excellent!  I think it would be okay to only have the equities exposed to foreign currency since corporate Treasuries do have hedging programs in place.

Looks good.

This will provide reasonable protection from either a strengthening or weakening currency.

I'm a little worried about the credit worthiness of Israeli bonds, but it is difficult for me to judge.  The only way to lower this risk is add US or international bonds, but then this exposes you to the risk of a strengthening domestic currency.  I would add a little US bonds, say 10%, if it helps you sleep at night, but it is not necessary.

Looks good to me.

Looks very reasonable. If it is possible to add a sprinkle of LT US treasuries at low cost than I would consider it, but your allocation looks good!

Desert wrote: I agree, that does look good. 

Wow, 0% inflation and 5.5% yields!  I think I'm going to retire to Israel. 

How is the job market for young people coming out of college in Israel these days?

It's mostly great for IT personnel, because Israel's tech community is immense...

Many youngsters fire up their own start up companies before even completing their academic degrees. They serve in the cyber units of the Israeli Defense Forces, gain knowledge and then use it to start companies and make money...

You can read more about it in the book "start up nation". To quote: "How is it that Israel—a country of 7.1 million people, only sixty years old, surrounded by enemies, in a constant state of war since its founding, with no natural resources—produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the United Kingdom?"

However Israel is always going to be interesting for better or worse due to our nice "neighborhood" of belligerent islamic dictatorships, so consider this before making a decision to retire here

Our of curiosity, what is the failure rate for these start-up busineses?  Here in the USA, it is a 71% failure rate at the 10th year.

catacomb wrote: It's mostly great for IT personnel, because Israel's tech community is immense...

Unless I was misinformed, we have Israelis to thank for the creation of the USB flash drive.

I probably posted an article about this before, but Isreal doesn't consider intellectual property developed while in government service as belonging to the government.  Hence the entrepreneurship culture.

catacomb wrote: 25% - Bank of Israel Zero Coupon 1 year Bond ETF (ILS) - Highly liquid, small yieald

Catacomb, is this held in a tax-deferred account?

dualstow wrote:

catacomb wrote: 25% - Bank of Israel Zero Coupon 1 year Bond ETF (ILS) - Highly liquid, small yieald

Catacomb, is this held in a tax-deferred account?

No. The entire portfolio is held in a long term taxable account. In Israel one is very limited in the ability to construct their own portfolio in tax deffered accounts (pension accounts and stuff). This is one of the most debated issues in Israel, as institutional actors have way too much power and active managers decide what to do with everyone else's pension money. The equivalent of an IRA is non existent for most Israelis.

BTW yeah, the Disk on Key was invented here... and so was the Pillcam, the Uzi submachine gun and a bunch of other stuff (http://en.wikipedia.org/wiki/List_of_Is ... iscoveries)

Desert wrote: I agree, that does look good. 

Wow, 0% inflation and 5.5% yields!  I think I'm going to retire to Israel. 

How is the job market for young people coming out of college in Israel these days?

I was wrong. Current inflation expectation for 2013 is 1.7%

melveyr wrote: Looks very reasonable. If it is possible to add a sprinkle of LT US treasuries at low cost than I would consider it, but your allocation looks good!

agree. Your pitfall is bankrupty of Israel, you lose 50 % of your money
By GDP Israel is about rank 40 worldwide near Portugal, Greece (just to name a few) so just to reduce that risk I would add some LT US Bonds (5% ?) or EUR (iBoxx Sovereigns Eurozone 25+ UCITS ETF or IBGL).

catacomb wrote:You can read more about it in the book "start up nation". To quote: "How is it that Israel—a country of 7.1 million people, only sixty years old, surrounded by enemies, in a constant state of war since its founding, with no natural resources—produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the United Kingdom?"

Reminds me of this line of dialogue delivered by Orson Welles in "The Third Man":

In Italy for thirty years under the Borgias they had warfare, terror, murder, bloodshed—but they produced Michelangelo, Leonardo da Vinci, and the Renaissance. In Switzerland they had brotherly love, 500 years of democracy and peace, and what did that produce? The cuckoo clock.