3 Investing Tips for Volatile Markets

With stock markets getting crushed here are 3 tips on investing during volatile markets:


Diversify
To understand this concept more easily, we first need to define the meaning of diversification. Diversification is an investment technique that uses many varied investments within a single portfolio. The idea behind it is that a portfolio of different kinds of investments may, on average, yield higher returns and pose a lower risk than a single investment. Diversification tries to smooth out volatility in a portfolio caused by market, interest rate, currency and geopolitical risks. In laymen’s terms, don’t put all your eggs in one basket. It’s important to remember that diversification does not assure against a loss.

If you include bonds or FDIC-insured Certificates of Deposit (CDs) in your stock portfolio, it may take away some of the volatility of the portfolio, allowing for potentially, more stable returns over the long run.


Don’t Panic
Keep you eyes glued to your long-term goals. It’s important to remember that markets go up and down, and if you made a financial plan, it would have taken this type of market volatility into account. The worst thing you can do as an investor is panic and sell everything and then wait for the market to recover. The market tends to recover very quickly. Large market gains often come about in quick and unpredictable spurts, and missing just a few days of strong market returns can substantially erode long-term performance. Remember the famous investing principle of buying low and selling high. Investors who panic often end up selling low.

Rebalance
The third principle is for investors to update or rebalance their investment portfolios. Rebalancing is necessary for two main reasons. First of all, it keeps your asset allocation in line with your risk level and, secondly, it keeps your portfolio in line with both your short- and long-term goals and needs.

If it Sounds Too Good to be True, it Probably is

Recently, news spread throughout the Orthodox Jewish community of people who had been defrauded by a “Ponzi-scheme” carried out by a certain investment firm. The New York Times reported that the Securities and Exchange Commission (SEC) charged the firm in a U.S. federal court with running the scheme, which defrauded nearly 1,200 investors to the tune of about $255 million. This began in 2005, and the scheme specifically targeted members of the Orthodox Jewish community, including many who live here in Israel.

Many individuals who invested all their savings with this firm are now unsure whether they will recover anything. Dazzled with the promise of unrealistically high “guaranteed returns,” many of these unfortunate victims decided to invest, and they may now end up with nothing.

Remember the old saying, “If it sounds too good to be true, it probably is”? Whether it’s that letter you just received in the mail saying that you won $5 million in a lottery that you never entered, or someone promising very high “guaranteed” investment returns, the consumer needs to realize that building wealth is a long-term process. There are no quick fixes.


Instant Gratification
In today’s western society, the concept of instant gratification is constantly being reinforced. Whether it’s our increasing dependence on fast food or the notion of getting rich quick, we have lost the virtue of patience.

The local media is filled with advertisements pitching various real-estate opportunities both in Israel and abroad. They often make very seductive claims, such as a minimal investment with returns of over 200% within three years, or a “guarantee” of a particular return. But how do we know if such claims are legitimate or not?

The first rule is always: buyer, beware. If something sounds too good to be true, it probably is. The second rule is to read the fine print carefully. Oftentimes the small print on the bottom of the advertisement makes it very clear that the “guarantee” comes with many strings attached, and there is a reasonable chance that you can indeed lose some or all of your money. The third rule is to always ask detailed questions, and never let the salesman off the hook. Ask pointed and specific questions to get a better understanding of the investment. Always inquire if there are any risks, and what they entail. If the answer is, “there are no risks,” or lip service is paid to explaining the risks, there is a good chance that you are not getting the full information about the investment, and you should think twice about investing.

This highlights why investors should work with licensed investment professionals. They are very much limited in their use of the word “guarantee,” which is only used for an investment guaranteed by the U.S. government. For a licensed investment professional, inappropriate usage of the word “guarantee” is against the law, and regulators take this issue very seriously.

Long Term
In reality, it is virtually unheard of for a person to accumulate wealth overnight. Rather, it’s a process that takes many, many years. If you are looking to build wealth for the long term, you should start investing as soon as possible. Using an expert will help you decide how to invest your savings, but you should first have a firm handle of your short and long-term goals and needs. Therefore, before you meet with an investment adviser, broker, or other investment professional, it’s a good idea to map out your financial goals. Do you have children or grandchildren to marry off? Are your elderly parents in need of care? Do you need some supplemental income to make it through the month? You need to determine your own budgetary needs and your ability to tolerate risk first. Then, you should ask your adviser what kinds of investments would best fulfill these goals. Use your adviser as a sounding board. The adviser can tell you if your goals are realistic, and if not, you can work together to come up with objectives that can be achieved.

You have worked hard to save money, and it would be a shame to lose it on a dubious “get rich quick” scheme.


Aaron Katsman is President of Global Investments at Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel, and helps people who open investment accounts in the U.S. Securities which are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC, MSRB, SIFMA. For more information, go to www.profile-financial.com or call (02) 624-2788 or (03) 524-0942, or email aaron@profile-financial.com

The Opportunity of a Lifetime?

With global stock markets crashing, many investors have panicked and decided to liquidate their stock holdings. However, although it’s hard to find a silver lining in this situation, this could actually be an ideal situation for investors with an abundance of cash or for young, first-time investors. It may even turn out to be a once-in-a-lifetime opportunity. The reason for this is that while experienced investors have been through market falls previously, they may have also lost money during the latest decline. On the other hand, for those looking at the possibility of investing, this is a good time to get started. But why should novice investors take the risk now, when the markets are falling, to start investing?

Buy Low/Sell High
According to an old investment adage, one should buy when prices are low and sell when they are high. Although there is no sure way to declare that a fall has reached its end, the market would definitely be cheaper after a 45% decline than it was before. In other words, the market is somewhat “on sale.” No one likes buying retail, and with the recent market pullback it could even feel as if the investor is buying wholesale! This could be compared with when a local supermarket runs a “45% off” sale. In this situation, shoppers would be lined up around the block to have a chance to make purchases at rock bottom prices. One classic investment strategy is ''buying the dips.'' An example of this would be to wait for a pullback of at least 10% in prices, and then the investor will make his purchase. This strategy often beats chasing sudden hot streaks that can result in overpaying or worse, buying at the top. And as for those “market timers” who want to see “for sure” that the market is moving back up before they buy, they often never get to enjoy the subsequent rebound.

One of the biggest risks of trying to “time” the market is the potential of "missing" the market. This occurs when an investor, thinking the market will go down, reallocates his investments and places them in more conservative investments. But while the money is on the sidelines, the market shoots up. The investor has, therefore, incorrectly timed the market and "missed" the best performing months. Studies have shown how much an investor can lose by being out of the market. According to research by DALBAR, the numbers are telling. For example, when looking at the returns of mutual fund investors over the 20-year period 1986-2006, we see that the average market timer return was -2%. During this same time period, the S&P 500 Index returned 12%. Additionally, during the 10-year period of 1997-2006, the S&P 500 Index achieved an annualized return of 8.4%. If an investor missed just the top 20 days during this entire period, his return fell to -4%. Keep in mind that historical returns are no guarantee of future success.

Oftentimes the market recovery is so swift that by the time investors have made up their minds to invest, it’s too late. The market will have already recovered most of its losses. We have witnessed those types of upward moves over the last few months. We have seen the market move up by as much as 9% in one day.

Getting Started
Many young couples put their wedding money into the bank, where it accrues virtually no interest. Even at that point, however, it is important to start thinking about the future. How will they be able to afford paying for their children’s weddings in 20 years’ time if their savings do not grow? In this situation, it is a good time to make whatever money you have work for you now. To get started, a young couple will find it very useful to consult with a financial adviser, who will help them to define their financial goals and needs. From this, an investment plan can be drawn up to try to achieve these goals and meet these needs.
If this money is left lying around, doing nothing, there is little chance of growing enough interest to use it to its full potential. Investing is a good option, and the recent market drop may well be in your favor. If you buy at a discount now, this increases the chances of potential success.

Aaron Katsman is President of Global Investments at Profile Investment Services. He is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA (formerly NASD), SIPC, MSRB, SIFMA. For more information, go to www.profile-financial.com or call (02) 624-2788 or (03) 524-0942, or email: aaron@profile-financial.com

Financial Sense for Chareidim: Mesila Gives The Tools

Being in the midst of a global economic crisis has brought home the point that individuals must take a more responsible approach to their finances. Unfortunately many households are already on the brink of financial collapse and lack the necessary tools to get their financial situation in order. I'm not only talking about economic collapse, but in many cases the strain this causes on their marriage is unbearable. Broken finances=broken families. What makes matters worse is A- the need for people to 'keep up with the Joneses' and B- the unbelievable ease with with anyone can access money. Both of these factors, as well as many others, have contributed to economic hardship and a culture of debt among many in today's society. While organizations like Debtors Anonymous have done a great job, many feel that due to special circumstances, Orthodox Jews need their own organizations to work with their own constituents. Mother In Israel had a great post, that appeared on Orthonomics, about Paamonim. I'd like to mention another group that does a lot of work in the Chareidi population.



Mesila works with families to provide them with the tools necessary to live within their means. It's not just another Gemach(Kindness organization.) Mesila tries to convey responsible, Torah-based attitudes towards finances. It's obvious that Chareidi society has different needs than other groups, ( feeding large families, Bar Mitzva's, marrying off lots of children..) and many people end up loaded down with staggering amounts of debt and spend their entire day running from Gemach to Gemach, rolling their debt.



As a volunteer for the organization,I have worked with tens of cases and can attest to the fact that their methods work. I'd like to share an example:



About two years ago I started to work with a young couple with 3 children under the age of 5. The husband was learning and the wife was a teacher earning a teachers salary. Wanting the same type of lifestyle that their parents currently enjoy, they bought a car, an apartment, and of course they could only furnish the apartment with the very best furnishings. Needless to say that their total income was about $1,000 a month, had expenses of $2,500 a month and had run up debt of $50,000. They were late on mortgage payments, municipal taxes etc.. You name it and they hadn't paid it. They were constantly under threat of being cut off from all utilities. ( Believe it or not this is actually one of the easier cases I have worked on!)



Well, we got to work. The first thing they needed to do was understand their expenses, both monthly and annually. Mesila believes that you need to separate your monthly and annual expenses from your debt. If everything s mixed up then you can't get a good understanding of the problem. Once the couple actually saw their income and expense line, they actually realized that they had a big problem. The husband immediately got a job as a security guard, and the wife started to supplement her income by tutoring. Then we worked on a budget. They would have to live within their means, and have money left over to start paying down debt.



A big issue for these couples is that they have no room to breathe. What do I mean? That even though they are making more and saving more they are constantly being chased down from people wanting to be paid back. So the couple made a list of all the individuals, and companies that they owed money to, and we starting calling them to re-work the payment plans. We also arranged for about $5,000 from a Gemach to pay back the most urgent loans; those of the local grocer, butcher and fruit store. The firms we called to re-work payments were so accommodating to the couple. I see it over and over again when it comes to charity. If people think that they are giving and they feel like the money is going into a black hole, they are less inclined to give. But if a family actually has a budget and they are doing their best to live within that framework, people are much more willing to donate. The same thing holds true for these firms. Once they heard that the couple is working with Mesila, they delayed repayment for a few months, and then made terms that the couple could handle.



I don't want to go on and on with this story but needless to say, the family is doing well. They have managed to cut their debt down to about $20,000, and are living within a monthly budget. The husband still works nights as a security guard but is in school studying to be a social worker.



Many of you will say that Chareidim should get out of the Yeshiva and get a job. First of all, Mesila believes in not judging anyone. You can do whatever you want to do with your life, just make sure that your expenses are no more than your income. Also, what you need to know is that in many families the husband works and may even work multiple jobs. The wife also brings in some extra money. They are very resourceful. It's just that if you have 10 kids, even if you net $5,000 a month you are going to be in trouble.



The need is great and they are inundated with requests to help. There aren't a lot of English speaking volunteers. There are hundreds of Israeli volunteers and they have branches all over Israel and are even trying to start a branch in Lakewood.

We could use more organizations like Mesila and Paamonim to enable people to get back on their feet economically. Any of you who think you could use your experience to help others are urged to call and volunteer.

4 Sites to Learn About Investing

As a financial investor I am often asked about informative websites on investing. While the Internet is loaded with information for investors, here are 4 sites that will give you the information that you need. keep in mind that these cater to different knowledge level, so I am sure you will find one that suits your profile.

New Rules of Investing - this site is a really interesting view on investing 2.0. Talks about all kinds of new methods of investing, as opposed the old school way of investing.

SeekingAlpha.com- This is a site that is geared to professional investors. It is a site that aggregates financial blog content, and gives investment ideas to those in need.

CBS Marketwatch- This is a must for those who want up-to-date information on what's happening in financial markets.

Israelnewsletter.com- For those of you interested on what's going on in the Israeli economy and Israeli stocks that trade in the US, this is a very informative site.

Update: Bank of Israel Cuts rates by 0.5%

The Bank of Israel(BOI) has surprised market players by lowering rates by 0.5% down to 2.5%. This is the lowest interest rate level ever in Israeli history. This means that you will pay less on overdrafts, and conceptually, get better loan terms at your bank. Whether the banks start granting loans is anyone's guess. On the other hand interest that you will receive on your bank deposits or on Israeli government bonds will drop.

The BOI must feel that with limited inflation risk, and the economy showing signs of zero growth, they need to do whatever it takes in order to jump start the economy. Now if the governement would only cut taxes!

3 Money Saving Tips

With everyone worried about a global economic slowdown, and consumers facing lower disposable income, saving money will be key to helping people get through these tough times. Here are 3 tips that you can save money. Feel free to comment and share with others your tips on saving money.

1- Stick to the shopping list. Before you go to the supermarket, make a thorough list of everything you need. Then when you are shopping, only buy what's on the list. The items on sale that are calling out to you to buy them need to be avoided if you don't need them now. Even if you think you will have a use for the item in a couple of months, forget about it. It's a question of current cash flow. You can't spend what you don't have.

2- Leave the car at home. Even though gas prices have dropped dramatically over the last 4 months, if you are able to cut out one tank refill a month you will have a big savings. Instead of taking the car to the neighborhood grocery or even to work, try walking. Not only will you be physically fit but you will be fiscally fit as well.

3- At restaurant drink water. If you treat your family to a dinner out at a restaurant, order water and forgo the pop or soda. A family of five can save about $10 on drinks just by ordering water.

Can You Afford Your Child’s Wedding?

Over the past few months, I have received countless phone calls and held innumerable meetings with parents trying to pay for their children’s weddings. Instead of enjoying the fact that their children are about to start building homes and families of their own, many parents spend a lot of time worrying about how they will be able to pay for the wedding. In many cases, the only way that the parents can afford to make a wedding is to spend far more money than they actually have, leading them into serious debt, or in a few cases, near-bankruptcy. This does not only apply to parents that barely scrape by on a monthly basis. Plenty of individuals who have saved over the years, or have received an inheritance or some type of gift worth anywhere from $50,000 to $140,000 are often in the same position. For example, one person with whom I met recently had $90,000 set aside for making a wedding. However, she is now worried that this would not be enough to pay for a good shidduch for her daughter. Another client told me that his daughter has been dreaming of her wedding ever since she was a little girl, and she doesn’t want to skimp on anything. She wants to buy her own dress, have the most beautiful flowers and the biggest band … etc. The only problem is that the family is still financially reeling from the last wedding that they made, six months ago.

I will not use this column to state my personal opinion of the current system. What I think about it is irrelevant. It goes without saying that these important issues should be handled by the Gedolei Yisrael. However, I would like to provide a few tips to potentially ease the financial burden on anyone who is about to make a wedding. Keep in mind that this isn’t some magic formula which will make you suddenly able to afford the wedding and everything else that goes along with it. However, it may help you to get better organized and save some money.

Make a List
When planning a wedding, the first thing that parents need to do is make a list. In one column, write down how much you are able to realistically give to the new couple. In another, make a list of all the possible expenses that can arise from the actual wedding, such as photographers, flowers, chassan and kallah gifts, hall rental, etc…. If it’s the first wedding that you have made, it may be a good idea to speak to friends who have already gone through this process. Next to the type of expense, write down the estimated cost. Then, in a third column, list the expenses for the couple’s new home, including buying/renting an apartment, linens, appliances, and other necessities. It’s important to differentiate between these two types of expenses because it allows you to prioritize where your limited funds can go.

Instead of simply coming up with a certain budget for the wedding and using it without much thought, creating this list will give you more control of each spending decision. It can also eliminate certain less vital expenses, distributing that money toward the most important needs. In the long run, this type of organization should help you save money.

Buy Second Hand
With the current shidduch system, the phrase, “can’t afford it, don’t buy it,” doesn’t seem to apply. However, one thing that can be done is to buy second hand. The new couple doesn’t need a brand new Shabbos table or bookshelves. Used furniture that is in good condition should be sufficient. A few years down the road, when the couple has the means to upgrade, let them pay for their new furniture themselves. Thousands of shekels can be saved if practical decisions are made with regard to what is purchased for the couple.

Since we can’t necessarily change the current system, it is worthwhile planning accordingly and trying to keep all expenses within the initial budget. Then you can sit back and enjoy your simcha and the nachas that the newly married couple will give you.

May they build a Bayis Neeman B’Yisrael.

Jerry Yang: Better Late Than Never

News that Yahoo CEO, Jerry Yang is leaving the company is welcome news for investors, albeit a decision that was too late in coming. Yang was responsible in rejecting a buyout offer from Microsoft value at over $31 per share. Yang insisted that the offer was too low and that he was going to turn Yahoo around and grow the company. Unfortunately he didn't deliver the goods and the stock is trading down at around $10. That would mean that in order to provide shareholders with the financial value that Microsoft was offering, the stock now needs to triple in value. Good luck.

The one compliment that I can give Mr. Yang is that at least now he understands that he needs to step down, and he understands that he has failed in his duty. I have seen many a CEO, be so arrogant that they can't admit their own failures and they end up bankrupting the company. Just see recent examples of Lehman Brothers and Washington Mutual bank.

Many think that his departure will open up negotiations once again with Microsoft. If so I wouldn't ecpect an offer anywhere close to the $31 offer. And who can investors thank for that? Jerry Yang!

US Dollar Surges on Bank of Israel Rate Cut

In a surprise move, Bank of Israel governor Stanley Fischer cut interest rates to 3%. Citing increasing challenges to the local economy and even a potential recession (maybe he read some of my posts!), Fischer made the unexpected move in order to help stem the economic slide.

With analysts lowering their '09 growth forecasts, Fischer who has until last week remained unrealistically optimistic, appears to have thrown in the towel an admitted that things aren't all that rosy, and is trying to add liquidity to the Israeli banking system to try and prevent the same type of credit crisis gripping the global banking system .

As a result of the cut, the US Dollar soared almost 2% against the Shekel. For consumers the rate cut is helpful. It will mean lower rates that you need to pay on overdraft, lower rates for loans and other types of credit. On the other hand, investors in Israeli bonds will receive less interest on their investment.