I drafted most of this original article prior to Succot, and left the finishing touches for after the chag to ensure it would be up to date. Little did I know that our entire world would be turned upside down as our country faces the single most traumatic event since the War of Independence in 1948. My thoughts and condolences are with all the families who have suffered horrific losses, with wishes for the speedy recovery of the injured and traumatized, and a safe return of all those held captive. May our soldiers succeed in their missions and come home safely, soon.
Although we are still reeling from the devastating events that began on Simchat Torah, as soon as we feel strong enough, it is important that we assess our financial situation. It seems like we just finished the previous catastrophic event, aka Covid, as we tried our best to manoeuvre our financial lives through an unparalleled life disruption. Currently we are at the cusp of an event that could have long term financial ramifications for many, in addition to the obvious personal suffering of tens of thousands of families across the country. As we all struggle through the current events, I wanted to share a few reminders and suggestions that I hope can provide some financial guidance to ensure fiscal stability and a long-term perspective.
- Avoid dramatic decisions
In times of crisis, don’t make any dramatic financial decisions. Families are being relocated from their homes, others are unsure of their future sources of income as soldiers are called in for reserve duty, while the economy grinds to a slowdown as many businesses reduce activity or temporarily shut down. Our sense of physical security has been shattered, but our financial security has been altered too. Often, we can push off large financial decisions, like taking out new loans, deferring mortgage payments or investing in large new purchases, until we can get a better picture of the future. If you can avoid taking out long term savings and weather the storm based on your income, you will have a better chance of making a sound long-term decision when the ground settles.
- Do a general accounting
Take a step back and assess your current financial situation by asking yourself (or speaking it through with a friend) the following: Is my income going to be impacted in the short term? What about the longer term? Am I eligible for government assistance for me or my company? Are there non-urgent expenses that can be delayed or cancelled? What changes do I need to make to try and remain stable during this very turbulent time?
Within those variables that are in your control, look to implement small changes (see above) that can help you and your family. For those critical factors beyond your control, make a list of important information to track to help you make decisions when you get more clarity. If your current bank balance needs to be monitored, set up a time to review it at least once a month. If your investments need to be evaluated, set up a time to assess. Ask yourself if your business is going to be impacted by these events. If so, what can be done to increase revenue or set yourself up for a robust recovery when possible.
- Foreign currency exposure
As the dollar has continued its upwards trajectory for the past few months (now pushing above 4 nis to the dollar – a high of more than 8 years), an increasing number of people have asked for advice on how to take advantage of the new reality. Is this the time to move money to dollars as the dollar skyrockets, or should they bring their dollars to Israel and convert them to shekels at the great rate? Will the dollar continue appreciating or are we seeing temporal highs? The short answer is I have no idea. But that shouldn’t prevent you from making appropriate financial decisions that will improve your long-term security.
Those who are living in Israel, earning dollars but with expenses in shekels, have been ‘earning’ x% more over the past number of months as the dollar strengthened. However, the reality is that those who have income in a different currency than their living expenses, need to keep a close eye on their budget to ensure that the currency’s movements do not push them into a negative balance. The lengthy periods over the past few years when the shekel was very strong, reduced income and while the dollar appreciation is welcomed by some, increasing one’s budget unnecessarily in these uncertain times would not be wise.
If most of your expenses are in shekels, I believe a significant amount of your assets should also be in shekels (that way you plan when to convert the currency and ensure that you are never forced to change currency at a very unattractive rate), and the high rate provides a great opportunity to convert money into shekels at favourable rates. Especially when you need emergency funds, having money close and available in shekels is critical so that you have the necessary safety net to avoid making rash decisions. Convert your money over time and take advantage of the high rates as it’s impossible to know how long they will last. Think long-term about how the rate looks from a historical perspective to give you more confidence when making the move. By pacing your conversions over time, you may not manage to benefit from the highest rates, but you won’t lose from the lowest values either.
- Stock market highs and lows
Anyone who has money invested in the financial markets knows that gut-wrenching feeling when they appear to be in a free-fall, taking all our hard-earned funds with them. However, the savvy investor also knows that generally the markets recover and reach new highs. The golden rule is always that the investment risk must match the needs and stage of the investor. As long as they are in sync, no investor should pay attention to the lows. Wars have generally temporarily impacted on the local market and the current war is no different with the local stock indexes down approximately 10% (as of the time of writing) from pre-war levels. (It is interesting to note that the bond market is actually up over that period of time.)
However, having said that, in times of crisis, the Israeli investor has been resilient over the years and the Israeli markets have kept their value during previous wars and have gone up significantly after the end of the war. Economic slowdowns during the war lead to expanded investment opportunities when the quiet resumes and this investment and expansion leads the market forward. Societal unity also has the potential of creating optimism which can help to reduce the current market under performance, compared with other markets this year. Keep the long-term perspective in place and don’t make dramatic changes in your retirement savings as these changes are almost always detrimental in the long run.
Long term approach
We are living through a very traumatic and complex time. Prophesying is not among my talents, so I won’t even pretend to know what the future holds. I cannot say when the war will end nor guarantee that the Israeli stock markets will recover during or after the war. I have no idea how long the dollar will remain strong and when/if the shekel will regain its strength. However, what I can say is that all situations contain threats and opportunities. Assess your current reality and start to assess the war’s impact on your finances, but without panic.
May we all continue to unite, giving and getting the strength to get through these traumatic times. Our personal financial situation and security may ebb and flow, but the eternity of the Jewish people will remain and should help to guide us through this challenging time. Am Yisrael Chai!