Your Investments: The secret to long-term portfolio growth

‘I wish that Israelis had the same culture of stock-market investing, especially from a young age, as Americans have’

By AARON KATSMAN
November 26, 2014 22:42
3 minute read.
Tel Aviv stock exchange

Tel Aviv stock exchange. (photo credit: REUTERS)

A few days ago I met with the CEO of one of Israel’s largest brokerage firms. We were speaking about cultural differences between Israelis and Anglos in regard to investing. When I told him how my average account probably had 50 percent to 60% allocation to stocks, he laughed and said in Israel that’s considered a very aggressive portfolio.

Due to past stock-market scandals and that up until about six or seven years ago investors could get very high returns on bank deposits, Israeli investors developed an aversion to risk. Despite the new reality of bank deposits that pay next to nothing, Israelis have been slow to return to stock-market investing.

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The CEO, in agreement with me, said: “I wish that Israelis had the same culture of stock-market investing, especially from a young age, as Americans have. They wouldn’t need to get caught up in short-term market swings. They could just let the market do its thing and profit.”

How to build wealth I recently met a very wealthy family who had never used a financial adviser, choosing instead to do their own investing based on what they described as “getting good tips and then doing our own research.” When I asked them how they had done, they told me they never achieved much growth in their investment portfolio.

After doing some more probing, they felt that investing was easy (even though they had little success), they trusted their friends who gave them the tips, and they didn’t want to pay fees that a financial adviser would charge. So to save a few hundred or thousand dollars in fees, they ended up losing literally hundreds of thousands of dollars in portfolio growth over the last few years.

Too smart for your own good

Whether it’s trying to “outsmart” the stock market by trying to find some kind of cute reason that no one has ever thought about, or that individuals tend to panic when the market drops and they sell their stocks and then only buy back once the market has recovered (the opposite of buy low and sell high), there is plenty of research that shows that individuals who try and time the market by frequent trading tend to underperform board market indices.

The key to making money in the stock market is not by trying to outsmart it; rather, it’s by investing in it broadly with a long-term horizon. Not to overdose on clichés, but there is another famous investing: “It’s not timing the market but time in the market” that is the best way to build wealth.

Don’t take any shortcuts

One is not going to build wealth buy simply investing a small sum and hoping to keep hitting home runs. You’re not going to keep finding the right stocks and double your money. Anyone who promises this to you is unethical. There is no shortcut to building wealth. You need to start investing and, with discipline, keep depositing more money – and with the wonders of compound interest and the growth of the stock market, over time you will create a comfortable nest egg.

Time is on your side
In a few weeks we will read in the weekly Torah portion how the children of Israel were punished and forced to wander the desert for 40 years. The question is asked why they had to wander for 40 years; couldn’t Hashem have brought them in immediately? The Malbim answers that they weren’t ready. In Egypt they had reached the lowest level of impurity. It wasn’t possible for them to suddenly become so pious overnight, as their travails and mistakes in the desert proved. They needed time to slowly purify themselves. Only then would they be ready to enter the Holy Land.

The same holds true for investing. It’s virtually unheard of for someone to accumulate wealth overnight; rather, it’s a process that takes many, many years. The key to long-term financial success is to start investing as soon as possible and stick to a plan.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.

aaron@lighthousecapital.co.il

Aaron Katsman is a licensed financial professional in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.


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