By Douglas Goldstein®

Though there are many reasons for people living in Israel to own dollars, many people have expressed concerns about the drop in the value of the currency. Much of the world uses the U.S. dollar as its “reference currency,” meaning that they measure their wealth in terms of dollars. Americans living in Israel often still have a business and emotional connection to their native greenbacks. As the currency of the world’s most powerful economy, it makes sense for people to have some exposure to it.

But major world leaders have begun suggesting a different paradigm. China, Russia and Brazil have suggested creating a new global reserve currency. China, which has been the biggest buyer of U.S. Treasury bonds, has admonished the United States for lack of fiscal responsibility. And several non-U.S. central banks have announced their goal to diversify their reserves away from the dollar. All these developments have weakened the dollar and have caused a drop in Treasury prices.

Talk is Cheap
With all their declarations, though, it’s interesting to note that some of these big talkers are not putting their money where their mouth is. For example, in June, the Treasury sold $100 billion of bonds to foreign entities, a new monthly record [Source: Department of Treasury, Haver Analytics, FMRCo (MARE) as of 7/31/09]. If China, for example, and the other big Treasury buyers were no longer interested in U.S. bonds, shouldn’t we have seen an abatement in the size of their investments? That being said, with changes in U.S. economic policy, it would be responsible for foreign banks to diversify to some extent.

Should You be Like a Central Bank?
Though an individual’s concerns are not the same as those of a government, it’s important to examine your own diversification. No matter what currency you choose to be in, you are making a bet. For those people that want to limit their risk, though not eliminate it, it often makes sense to spread out the risk using a variety of different types of asset classes and currencies. Speak to your financial adviser to examine your situation.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

Have your grandparents ever reminisced about the good old days, when it cost a penny for a treat? Over time, prices of goods increase, but historically this has been paralleled by an increase in salary. Traditionally, a salaried worker’s periodic raises help maintain purchasing power. However, the problem arises when one lives on a fixed pension. If a pension doesn’t increase as the cost of living increases, then over the long term, the purchasing power of the pension decreases. This means that even though a retiree receives a check for the same amount, and buys the same groceries, his refrigerator won’t be as full.

For seniors dependent on social security, it’s important to note that at the end of September the American government announced that social security recipients won’t receive a cost of living increase in their monthly checks for the next two years. This is a radical change in policy, given that the American government has been adjusting monthly checks since the high-inflation 1970s. The adjustments will end because the government projections for the CPI (consumer price index – upon which adjustments are made) show that it is expected to decline over the next two years.

The CPI is a broad index designed to measure the cost of living. However, the products and services used in the calculation may not reflect an individual’s lifestyle. While the CPI may be down, the price of health care (a service most seniors need) continues to rise.
This is bad news for those who rely on American social security payments to help pay their bills. These people will have to figure out how to live on less.

This change in policy should serve as a wake up call for the rest of us: Make sure your pension payments are linked to inflation and/or have a cost of living increase built into them. And second, even if you have a “guaranteed” periodic adjustment, don’t trust it! Make sure you have a diversified set of pension and retirement income sources.

The U.S. government is not (yet) defaulting on social security, but it is taking something as American as apple pie and changing the recipe. Nothing is guaranteed.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

When you hear people talk about “living off the interest from their investments,” chances are that their portfolios include bonds. This is because bonds are “fixed-income” securities – they provide a steady stream of revenue to investors who agree to hold them for a predetermined period of time.

Bonds are essentially loans to organizations. The principal that the investor puts in is repaid on the maturity date of the bond. The amount due on maturity is known as the bond’s “face value.” Until maturity, fixed interest payments, also known as “coupon payments,” are made at set periods of time, usually every six months.

Why Buy Bonds?
There are two main reasons to include bonds in your investment plan. First, bonds are generally considered to be less volatile than stocks. While stocks may fluctuate unpredictably, high-quality bonds can usually be counted on to return the principal. The default rate on high-quality bonds is very low, which means the issuer will most likely be strong enough to return the face value to you upon maturity of the bond.

Secondly, bonds are an income-producing investment, meaning they provide a dependable flow of income. As opposed to stocks, where you often need to sell your shares in order to receive money (unless the stock pays a dividend), you can maintain your bond holdings and still see an inflow of cash.

Bond Strategies
Bond payment schedules can be designed to deliver income according to individual needs. This is useful for people living on fixed budgets who rely on their bonds’ interest payments to help meet their expenses. By “laddering” bonds to be due when you need money, you can create an income stream that matches up with your cash-flow needs.

Though a bond ladder may not always give you the highest possible return on the fixed-income portion of your portfolio, it is a smart strategy for people who want to try to protect themselves against swings in interest rates and desire predictability in their fiscal lives.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein , CFP®

When I participated in Maslulim’s advanced driving course (www.maslulim.co.il), the first thing I noticed was their slogan hanging on the wall: “Changing the driving culture in Israel to personal responsibility and cooperation.” Maslulim teaches that every driver must focus not only on his own situation, but must work together with others around him. I realized that the same motto could be hanging in my office. As a financial planner and investment adviser, I often direct clients to take control of their money, and to combine forces with their family and advisers in order to have a safe financial journey.

Look over there!
In order to allow drivers to respond better to an emergency, Maslulim’s trainers insist on drivers looking further ahead than they are accustomed. When walking, individuals often pay attention to only five meters ahead them. Unfortunately, when driving, they also only look a few meters ahead. However, when sitting behind the wheel, people have to look way into the distance to help them anticipate what might happen. This increases their response time. In fact, one study showed that the vast majority of accidents could be avoided if drivers had reacted one second earlier. In heavy traffic, you can even look through the windshield of the car in front of you in order to know what to expect.

Like average drivers, most folks focus on the short term in planning their investments. They think so much about paying the next bill that they don’t look further down the line to see what they’ll need next year, in five years, or in twenty years. Then, when those points come near, they have no time to plan and end up failing. If investors spent more time now thinking, they might be able to avoid the accidents that occur with last-second decisions.

If you want to have a successful financial future, you must take responsibility for your own situation, and work in cooperation with your family and professional team. And, if you really want to make an improvement in your life, be sure to take the advanced driving course at Maslulim. Drive and invest safely!

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

When Ron, the instructor at Maslulim’s advanced driving course (www.maslulim.co.il), introduced the idea that drivers normally follow their instincts, he said that such reactions are usually wrong. He stressed that training can help refine your actions to prevent a crisis. This concept also applies in investing.

When should I slam on the brakes?
Maslulim teaches that in the face of danger, you should slam on the brakes with full force, even if you’re afraid to do so. Today’s advanced ABS braking systems allow you to control the car even as you come skidding to a halt. But with stocks, it’s different. While it may be instinctive to pull the brakes when faced with a crashing market, selling in a panic may not be your best move.

What is even better than slamming on the brakes is looking ahead and foreseeing the danger. Create a financial plan and/or rebalance your portfolio as needed. Then hopefully you won’t need to battle the urge to sell when the market crashes.

The Maslulim instructor also pointed out that your side mirrors should tilt out further than they are normally set. This allows you a wider perspective on the cars coming up beside you, providing a better a sense of what is about to happen. Knowledge is empowering, but when it comes to both driving and investing, past performance can’t predict the future. While yesterday your neighbor stopped at the red light, you can’t assume he’ll stop today, so be prepared for all alternatives. Similarly, past investing history can’t predict future returns, so plan for different scenarios.

Maslulim’s course made me a better driver, and I strongly encourage all drivers … even if you’ve been driving for decades … to sign up now. You’ll be amazed at how much you will learn, and how much fun you can have. After all, not crashing your car is a good investment decision. After you’ve fine-tuned your driving, fine-tune your investment portfolio. If you feel you’re not driving your investments well enough, you can also take a course or speak to a professional financial adviser to get you back on track.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

Don’t make financial decisions based on what you wish will happen. After all, you wouldn’t neglect your savings plan in favor of purchasing a lottery ticket on the eve of your retirement. Hoping for high returns or never-ending real-estate booms can overshadow the reality of today’s economy.

Instead, base your expectations on solid research. Before buying a product, ask yourself if it sounds reasonable. If something sounds too good to be true, chances are it’s a scam. I’m amazed at how often, post-Bernie Madoff, I’ve met with people who have told me that they gave a sum of money to a friend/relative/organization to invest, don’t receive monthly statements, and are unsure about how their money is faring. When I draw the comparison between their “safe” investment and the recent Ponzi scheme, I’m told, “But this is different – I’ve known the guy for the longest time.”

After you invest, make sure you review your monthly statements and stay abreast of your finances. Ignorance is not bliss. While you shouldn’t lose sleep over every market movement (after all, volatility is the natural state of the market), don’t file your statements without reading them. Financial firms like green (both money and trees); they wouldn’t send you mail if it wasn’t important. Legal requirements obligate the firms to send out reports for the investor’s benefit. Even if you’re invested for the long term, it behooves you to look at your trade confirmations and monthly statements carefully.

Everyone wishes that their investments would constantly increase in value. However, closing your eyes, blowing out the candle, and making a wish won’t help your bottom line as much as doing due diligence, proper diversification, and risk control. Turn to a financial adviser for help, but realize that at the end of the day, your financial adviser is just that – your adviser. Unless you’ve given him discretionary powers, the final decision of any investment is up to you. Make a well-educated decision, not a wish.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA and SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

Regardless of whether you invest in Israel or in the United States, the turmoil in the U.S. housing market has probably affected your portfolio. Plummeting U.S. home prices have caused severe economic developments, including:
1. shaking consumer confidence,
2. eliminating billions of dollars of value in the mortgage-backed securities market,
3. contaminating the balance sheets of financial institutions,
4. and slamming the brakes on the economy.

With interest rates now at rock bottom, people looking for income from their bank deposits are having a hard time. Governments keep interest rates low to try to stimulate the economy. If companies and individuals can borrow money for a low price, they are tempted to increase spending. This, in turn, can lead to growth. On the other hand, I’ve helped many people purchase FDIC-insured CDs (certificates of deposits in U.S. banks) because they wanted a high degree of safety.

Signs of Life

Recently, we’ve begun to see some indications that the housing lull may have begun to abate. Analysts have noted that since the beginning of the year, building-permit issuance and the number of homes sold have increased significantly. Will that growth continue? Some market experts have pointed out that home development had to improve from its ultra-low levels in order to keep pace with home destruction (when supply is removed from the market due to deterioration from age and other factors).

Does selling a home in Jacksonville help me in Jerusalem?

As many Americans feel the recession is ending, they’re investing in housing. This, in turn, creates more building activity, banking services, and general growth. Perhaps people will start taking out home equity loans to finance other purchases, fueling corporate profits, too. So, if your investments are directly or indirectly connected to the U.S. economy, you may start to feel a piece of the economic excitement.

Naturally, there are no guarantees in the world of investments. With the rising current foreclosure rates and high unemployment, the housing stabilization may be somewhat subdued. But keep a close eye on the biggest global housing markets to see how it affects you.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

Traditionally, the rule of thumb as to how much one should spend on a house was three and a half times your annual income, with monthly mortgage payments of around 25% of your monthly net salary. However, treat this generality with caution since it relates to the average guy on the street and not to any one individual. For instance, if you think that your job may be at risk or your car is on the fritz, now may not be the ideal time to commit to monthly mortgage payments based on your current salary.

An important point to keep in mind is the difference between a new property’s price and the total cost of acquisition. The total cost of acquisition includes the cost of the property, lawyer fees, renovations, moving costs, and miscellaneous expenses such as curtains and new towel rods in the bathroom. The hidden costs can really add up, so they should be part of your total housing budget.

Once you know what you can afford to spend, consider buying a less expensive property. After all, since the future is always unknown, it may not be wise to overextend yourself financially.

Keep an eye on your current housing costs. If it’s difficult to meet your current obligation, it may be impossible (and unwise) to commit to a larger monthly mortgage. Consider your lifestyle: is your family (and by extension monthly budget) growing? Are you planning an expensive vacation? Are wedding bells – and bills – ringing for your children? Make sure that your future financial obligations and goals won’t conflict with the property’s purchase, since your house needs to fit into your overall financial plan.

Buying a house may be a solid way of building equity over the long term, but before you make the investment, assess whether you can afford it.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA and SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

By Douglas Goldstein, CFP®

Unfortunately, very few new arrivals in Israel are lucky enough to have a great job lined up for them when they get off the plane. Rather, the vast majority of new olim need to learn Hebrew, set up their homes, and adjust to a new culture. Olim who are around retirement age may have a hard time meeting a similar income level to what they had back in the Old Country.

Bonds provide income

One traditional asset class used by folks looking for predictable income is bonds. Bonds are a loan that you make to a government (i.e., Treasury Bonds, Israel Bonds) or a company for a certain period of time. During the life of the loan, you receive periodic interest payments that you can use to supplement your income. At the bond’s maturity, you get back your principal, presuming the issuer is still solvent.

Are they safe?

Though bonds are traditionally less volatile than stocks, there are still risks. The bond market has ups and downs, and in certain circumstances, you could sell bonds for lower than the purchase price. Also, if the issuer of the bond defaults, you might end up with nothing.

How should I set up my bond portfolio?

A 60-something couple recently came to my office and said they wanted to switch a piece of their investment accounts to bonds. We constructed a diversified portfolio using corporate bonds issued by major corporations. We then prepared a table showing when each of the bonds would pay its interest, so the couple had a clear sense of the ongoing cash flow and could budget accordingly. If you want to examine the pros and cons of using bonds, speak to a financial adviser, or call (02-624-2788) to order your copy of Building Wealth in Israel, which dedicates a whole chapter to bond investing.