By Douglas Goldstein, CFP®

Be wary of “average” returns.  While average grades may let you graduate from school, the “average” performance of an investment might not let you achieve your fiscal goals.  Average is a combination of both top and bottom scores. Consider the ramifications of averaging a stock’s performance over a five-year period. Chances are that if you needed to cash in on your investment suddenly in the fourth year, you might find yourself a lot poorer than the “average” investor who held onto the investment for the full five years.

Risk and reward

Many investors forget what risk means.  They cite the phrase, “the greater the risk, the greater the reward.” But by believing that risk means reward, in effect they’re ignoring the fact that a “risky investment” also entails the real risk of loss.  Any position in the market contains a certain measure of risk.  Some are riskier than others and, as the idiom asserts, sometimes it’s better to be safe than sorry.

Set reasonable expectations

If you have reasonable expectations, you are less likely to be disappointed by a lackluster market performance.  Obviously, there are only two directions that the market can move: up or down.  Investors may be divided on which direction they think the market will go, but they should not be ambivalent as to what their long-term goals are. A carefully constructed portfolio can help protect an investor against movement in either direction.  However, even the most detailed planning can prove useless if an investor has unrealistic expectations.  Therefore, do your research wisely and don’t bet your financial future on a stock’s history.  Remember: past performance does not guarantee a future profit.

When all is said and done, risk is risky.  Even if a stock has a stellar track record, past performance is no definite guarantee for future profits.  At the same time you might be rewarded for taking chances, or your principal might get lost.  Research wisely, but don’t bet your future goals on a stock’s history.  Sometimes money in cash vehicles, even with low-interest rates, is an above-average investment choice.

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®

While it’s perfectly legal for Americans to own stocks outside the United States, several countries have a reputation for aiding tax evasion.  The downturn in the American economy has created a new way of raising revenue: encouraging the repatriation of money to American soil and fining Americans who engage in fishy tax-practices.

Perhaps as an after-effect of Madoff and other Ponzi schemes, or perhaps as a result of the America’s recession, calls for greater transparency in financial transactions are being heard world-wide.

One of the calls is for Americans to disclose non-U.S. bank accounts whose aggregate value exceeds $10K.  While it can be argued that there has been a longstanding requirement to file a FBAR, last year Obama’s administration made it clear that non-compliance with this filing requirement may open the possibility for criminal repercussions.  Clearly, Uncle Sam is looking for creative ways to fill the country’s coffers without raising taxes.  Americans, even when living abroad, are required to file annual tax returns with the IRS … even if they pay taxes in Israel.

If you have an investment portfolio in an Israeli bank, your stocks and bonds may become homeless.  Recently many Israeli banks, fearful of being scrutinized by the IRS, have asked their American brokerage account clients to leave.  If they don’t leave by a certain date the Israeli bank will take the liberty of liquidating their account, leaving the account owner liable to taxes and fees.  If you find yourself in this position, consider transferring your assets to a U.S.-based brokerage firm, which is what we have been helping clients do since they’ve begun receiving these “eviction notices.”  This would let you maintain your equities in familiar vehicles without having to worry about differences in time zones or difficulties in reaching an American broker.

Since there are many unknowns in this timely issue, if you are affected, or think you might be affected, check with your financial advisor, tax advisor, and American accountant for further information.

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®

To comply with potential pressure from the United States, many Israeli banks recently sent letters to their American clients asking them to move their securities accounts elsewhere.

In 2008 the United States accused UBS Switzerland of helping Americans to evade taxes. In what was seen as a reversal of the sacred secrecy of Swiss accounts, UBS not only disclosed names of American account holders, but announced that it would stop providing private banking services to Americans. These Americans were prosecuted by the IRS for failure to report worldwide income and tax evasion.

It seems as if the Israeli banks fear repercussions similar to those suffered by UBS if their clients use a non-American bank to hide money from the IRS. In an effort to protect themselves, they have therefore asked American brokerage clients to leave.

Tax-evading and tax-paying Americans alike
Recently, I’ve been approached by folks holding a “good riddance” letter from their Israeli bank, and I helped them transfer their assets to a U.S. brokerage firm. Their smooth transition to a U.S.-based brokerage firm with a local Israeli address enables them to maintain familiar investments while the Israeli banks remove themselves from what they view as a potential liability. Moreover, clients gained an English-speaking, U.S.- and Israel-licensed advisor to help them with their accounts.

Israeli banks are acting ahead of anticipated new U.S. regulations and are advising their account owners who are American citizens and/or U.S. tax residents that they can no longer provide brokerage services. While Israeli banks are currently not closing other banking services to American citizens, if you are the holder of an affected account it is important to give your local Israeli bank instructions on how to liquidate/transfer your securities.

Even if an Israeli bank does evict your account, there is no need to panic. This can be an opportune time to reconsider the asset allocation of your account. If you still should own equities, and are a U.S. citizen, consider moving them to U.S.-based brokerage firm.

If you’re compliant with the banking and tax regulations of all countries whose passport you hold, don’t worry. Legislation and tax codes may be tricky, but there are experienced professionals who can help you navigate the financial waters.

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®

The stock market doesn’t represent the current economic situation in the world. Rather, it shows what people think will happen in the future. If “the market” (all the people who are buying and selling stocks) believes that the world of money will improve, individuals will start buying stocks. The opposite is also true; if they feel that healthcare reform, war, and unemployment loom forebodingly, they’ll sell. If there are more buyers than sellers, the stock market will rise; if more people cash out their stocks, the prices will fall. This is because people normally make decisions based on how they feel, not on logic. As such, you can attribute the swings in the stock market to feelings rather than numbers.

There are two active steps to take as a result of having this knowledge. The first is to understand that your own portfolio’s movements may not accurately reflect the overall economy, and the second is to realize how you yourself make investment decisions.

Psycho-Market
If the underlying financials of a company aren’t represented by its share prices, consider what “the market” believes (regardless of whether facts support this). For example, if the market believes that the price of oil will jump, you might want to consider investing in drilling companies. Even if we can’t predict the price of oil, if enough people believe it will go up, then they will buy stocks that could profit from its move, and you may profit from purchasing shares in a drilling company.

As for investor psychology, be wary about letting your emotions get the better of you when making investment decisions. A client I met recently said that she knew she should have a percentage of her portfolio in stocks, but couldn’t bear to lose money and even large-cap stocks were too risky for her. Therefore, I bought her only CDs (certificates of deposits in banks, which are insured by the FDIC).

When handling your own money, think about what Vincent Van Gogh said: Let’s not forget that the little emotions are the great captains of our lives and we obey them without realizing 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, 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®

Evaluating the appropriateness of a particular investment depends on your personal situation, risk tolerance, and time frame. However, determining whether you should buy or rent a home frequently transcends economic considerations. Deciding to buy or rent your home isn’t only a difficult monetary decision. Emotional considerations may also play a part in your decision-making.

Should you rent?
Renting might be better than buying, and if housing prices are high, you can possibly get more meters per shekel by renting. Renting can also be advantageous if your time frame is short. The legal fees and taxes involved in frequent property sales may diminish any profits earned from appreciating real estate. Cash-flow concerns are another reason to rent: do you really want to have a large portion of your net worth tied up in an illiquid asset?

Should you buy?
Renters bemoan that when they hand their landlord a check every month, they are throwing money away. But while it’s true that renting involves a recurring expense that can never be gotten back, it’s not clear that the money is being thrown away, since the renter is getting a real benefit: a roof over his head. Moreover, the renter can use his money for other investments rather than parking them in an illiquid property. Buying a home costs more than just the price tag: there are many hidden expenses, including the fact that you can’t invest your down-payment elsewhere.

However, owning property has non-cash benefits. The peace of mind that your landlord won’t ask you to leave, and that you’re the king of your castle are worth something.

Is there an easy formula?
Though your financial planner can help you figure out the financial answer to which may cost more, it is up to you to think about the psychological answer. Put the two facts together, and you can determine whether you should rent or buy.

Remember that you are buying a home first and an investment second. Even if your home depreciates in value, it will still protect you from the elements.

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®

Some people like managing their own portfolio, while others don’t. However, even if you fall into the latter category and prefer to pass the reins to a money manager, there are still a few critical points that you need to know. Conveniently, you don’t need to understand the financial figures as much as you need to understand yourself.

“If I am not for myself, who will be for me?” – Ethics of the Fathers.

Think about what your goals are and how much risk you can stand. By sharing that information with your adviser, you are giving him the facts that he needs to help you choose the investments that can help you achieve your goals within your risk-comfort zone. He can also tell you if your goals are unrealistic. This can go two ways: some people want to spend much more than they can afford (like the lady I met who said that from her $400,000 inheritance, she wants to give each of her four children $100K to buy a house, and then she wants to use the rest to fund her retirement), while others don’t realize what they really can do (like the couple I spoke to who didn’t go on vacation because they thought they couldn’t afford it, even though they had over $1 million in the bank).

Think about what you need for yourself and for your family. Talk to your spouse and your kids. Write down your basic budget, and then think about the costs of your dreams. Bring that information to your financial planner to use as the starting point for your plan. As you delve into your own goals and financial situation, he should be able to recommend the investments that are appropriate, and he should take the time to explain them so that you can make a decision about whether to go ahead and invest in them. No one expects you to become a master investor, but you should interact with your professional adviser enough, and then you’ll find that making choices isn’t so intimidating.

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 Building Wealth in Israel 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®

“I’m good at handling investments,” a new client told me recently. “I just don’t have the time.” While he might have been right, I considered a recent Northwestern University study that showed that about two-thirds of participants thought they were managing their money better than they really were. Overconfidence made these investors ignore the reality that their investments weren’t as strong as they perceived them to be.

Whatever the reason that brings overconfident investors to an investment advisor, once in the conference room the overconfident investors tend to have distorted expectations of their advisor. Advisors who recognize this behavior will usually spend extra time with these clients explaining what’s realistic to expect, and help clients understand the metrics that can reasonably be used in determining investment success. If you or your spouse feel a little too confident in your ability to manage money, take a humbling look at all of the Wall Street experts who lost billions last year and take stock of what you have that they don’t.

“Under-confident” investors, on the other hand, know that they don’t know it all. Many times I’ve heard people say, “I don’t know much about money, Doug, but I’m sure you’ll pick the winners.” Though I appreciate their vote of confidence, like all investment advisors and money managers, I don’t have prophetic vision. As such, when people suggest that I can predict the future, I spend extra time with them explaining that even though I’m familiar with the investment world, that doesn’t mean that I will only choose profitable investments.

What happens when an overconfident advisor meets an under-confident investor? Unfortunately, this isn’t the opening line of a joke, but a recipe for financial disaster.

Try to identify where you and your advisor fit on the confidence spectrum, and then assemble a portfolio that will work for you. Take a long, hard look at your assets, income, and goals, and then get to work on putting together a rational, reasonable, financial plan.

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 Building Wealth in Israel 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 choose a doctor to give you medical advice, you feel he has the tools to help you because:
• He is more familiar with medical issues than you are.
• He is able to control certain aspects of your medical situation.
• He spends more time thinking about health care than you do.
• He seems to know what he’s talking about.

Of course, you should always turn to doctors to help you with medical care. However, that does not mean that they can always control the outcome of their advice. They may be familiar with medicines and able to operate in a way that can fix some of the symptoms. They usually keep up to date with all the various medical journals and publications. But at the end of the day, they are just suggesting reasonable medical procedures to help you, the patient, make educated choices.

Just like a doctor cannot prescribe medication and watch the patient live an everlasting healthy life, financial advisors cannot look into a crystal ball and control the outcome of the investments that they suggest. Some clients look to their financial advisors and say, “As you’re very good with numbers and you spend all day with the stock market, you should be able to pick the winners and avoid the losers.” But responsible money management cannot guarantee any specific return. The only thing an advisor can do is to ask many questions about your particular situation, goals, and risk tolerance, and recommend the most appropriate investments based on a variety of factors. A good advisor, like a good doctor, takes a complete history and educates the patients/clients to care for themselves. Your financial advisor should explain the risks of your investment choices, work with you to develop a financial plan, service your account, help you set reasonable goals, and point out any issues that may come up.

So how do financial advisors control the stock market? The same way surgeons control the outcome of the operations: they don’t. And if you ever meet a financial advisor who says that he can, watch out – he might be another alchemist selling placebos.

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 Building Wealth in Israel 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®

“Pessimists always win,” a client recently told me. “If the market goes down, you were right. And if the market goes up, you make money. Either way, you win.” While my client’s logic sounds reasonable, I would personally rather be a realist than a smug or pleasantly surprised pessimist.

While being optimistic is generally a positive trait, don’t be too sanguine and overestimate yours or your advisor’s skills. Don’t think he can control the market, and certainly don’t underestimate the odds that the market’s movement could adversely affect you. While many investors want to hand over the day-to-day management of their investments to a professional, this doesn’t mean they can give up all decision-making. Always take the time to have your financial advisor explain both the pros and cons of any investment program you are considering. While licensed financial advisors have undergone professional training, don’t leave your own rationality outside the conference room. Advisors like clients who ask questions and are interested in the details of their investments. In fact, you should be wary of advisors that don’t divulge the details about specific investments.

Every investor needs to be aware of the downside possibilities. Ask your financial advisor why he made a specific recommendation and what events could possibly make it fail. Then, monitor your statements to make sure that your portfolio’s movements jive with the explanations that you receive.

In the end, it doesn’t so much matter whether you’re an optimist or a pessimist. “An optimist will tell you the glass is half-full; the pessimist, half-empty; and the engineer will tell you the glass is twice the size it needs to be.” If you are realistic about your goals and the possibilities of gain and/or losses of your investments, you have the potential to be a satisfied investor.

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 Building Wealth in Israel is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.