Saving options 101 – part 2

In the previous article (  we discussed a few of the most common options for where to invest one’s savings, focusing primarily on stocks, bonds, and related products such as ETFs, as well as some of the factors that should be considered based on each saver’s situation. As we mentioned last time, these articles are not intended to offer specific investment advice, and interested readers should consult professional advisors with any questions.

Real estate

In addition to securities previously discussed, another common investment is real estate. This comes in many shapes and forms such as buying property directly or joining a syndication where a manager leads an investment in which limited partners participate. In addition to hopefully appreciating over time, real estate often produces current income, and sometimes has better tax treatment than other investments when including depreciation and other factors. That being said, real estate in Israel often produces less income than many other markets as rents relative to property values here are generally somewhat low.

When buying real estate directly in Israel, it is crucial to be aware of the tax consequences when purchasing and selling, some of which have changed recently. When investing passively in a syndication or fund, it is important to understand not only the underlying real estate, but also the terms being offered and fees charged to limited partners.

One can also invest in real estate by lending money, usually through funds or syndications, but here too it pays to understand the risks as well as structure of the opportunity. Investors should also be mindful of halachic issues that come up, especially the laws of lending with interest, when participating in loans and all other investments.

It must be noted that many passive real estate opportunities through syndications or funds require their participants to be accredited investors. Whereas this has different definitions in different countries, it generally necessitates a certain net worth and/or income level to qualify. Also, most forms of real estate require relatively large amounts of cash up-front, as opposed to stock and bond investments which can usually be initiated with less money.

Some of the factors mentioned in the last article should be taken into account when investing in real estate as well, including the currency you invest in, diversification, overall tax (in multiple jurisdictions, if applicable) and liquidity (real estate investments are generally much less liquid) as well as convenience – sometimes being a landlord takes actual work and time. For someone looking to build a diversified real estate portfolio, there are many factors to consider including location and also the many types of properties, such as residential, industrial, office, retail, hospitality, raw land, healthcare, and other special uses.

The bottom line is that real estate is different than financial markets in many ways, but many of the same principles apply and the prudent investor should learn enough to make appropriate decisions for his or her situation and goals.

Digital Assets

While financial markets and real estate have been around for quite some time, many newer opportunities such as cryptocurrencies and other digital assets have become very popular recently – and sometimes seem to present amazing opportunities to create wealth quickly. As we discussed in a previous article, it is crucial to understand your investment offering. As we are not expert in these matters, and many of them we don’t understand well (neither the product nor the investment thesis), we will not write too much about them. However, we do think it makes sense to apply some of the regular rules of investing to these products as well, and make sure that the risk/reward is appropriate for you by minimally understanding the worst-case scenario. Don’t put in more than you can afford to lose, and diversify – don’t put all (or too many) of your eggs in one basket.

It goes without saying that the risk of losing capital is generally tied to the potential profit. The hype and frenzy that surrounds certain products or opportunities might lead to poor decisions, so caution is certainly warranted. Even if people you trust claim they are getting very rich and tell you that the risk is minimal or even non-existent, which is very rarely the case, it pays to be careful.  While Bitcoin, NFTs or metaverse real estate may be here to stay, they also might not be, and interested investors/ speculators should proceed with caution.

In summary, as we wrote when discussing stocks and bonds, we think it pays to understand what you are buying/investing in and why, how it is expected to (hopefully) grow in value over time, and periodically check to see if there have been any fundamental changes that impact the thesis that motivated you to make the investment. With inflation ticking up and eroding the value of cash it is increasingly important to put your money to work, but to do so in a well thought out and smart way.

The world has been experiencing unprecedented wealth creation for many years. Interestingly, the pandemic that many were sure would end this cycle seems to have accelerated it further, at least for some. Historically, these cycles have had ups and downs and eventually a turning point is hit (and many people come out with less money when it’s over), but it’s hard – or maybe impossible – to predict when things will change. For these reasons and others, it pays to have a clear plan, understand the risks as much as possible, and stay disciplined and rational with your investment decisions.