FINANCIAL ALIYAH: BE SMART IF YOU INTEND TO INVEST IN ISRAEL
As I prepared to return to Israel this summer, I was struck how so many people that I met on my vacation greeted me with a “welcome home”. True that technically Seattle was where I grew up and that since I was back for a few weeks I was “returning home”, but let’s face it, on both a personal and nationalistic level, Israel is truly home. I won’t delve into how the commentators treat Jacob’s children as they settled and became comfortable in the land of Goshen. I won’t include the Lord’s command to Abraham to leave his home, to come to Israel. I have never been accused of being a “rah rah Zionist”, but the multiple “welcome homes” while in the US coupled with the use of American patriotic songs used throughout the Shabbat prayer service that coincided with July 4th, touched a nerve for me.
It is with that background that I want to give a true “welcome home” greeting to the new olim that arrived earlier in the week! Another summer of North American Aliyah kicked off this week, as the first Nefesh B’Nefesh (NBN) charter flight of the summer touched down. Mazel tov!
When it comes to making the big move to Israel, one common dilemma is should your assets accompany you as well?
Local Options
Israel has developed a very sophisticated (albeit expensive) banking system, and while there are only a few banks which control the lion’s share of the market, they offer a full range of banking products, focusing on the Israeli financial markets. The local firms are very experienced investing in the Israeli market and while they have made great strides, most local investment advisors have no real experience investing globally.
It’s also important to note that due to regulations like Foreign Account Tax Compliance Act (FATCA), many local banks will refuse to deal with American citizens vis-à-vis investments. If they will deal with you, then you will need to be careful how you invest as certain Israeli investments like mutual funds may be subject to prohibitively high tax rates in the US, due to Passive Foreign Investment Company (PFIC) rules. This basically leaves you with having to invest in individual, local stocks and bonds. For most olim this is a non-starter as they are not familiar with the local stock market. Nonetheless, if you are going to invest locally, make sure that you speak with an accountant first, in order to learn what can and what can’t be bought.
What to do with cash?
Many olim put much of their savings into a home and watched as, even with the housing crisis of a few years ago, their property values escalated. They have already bought a home/apartment in Israel, and suddenly find themselves with a substantial amount of money liquid, and no idea what to do with it. Many olim also have individual, joint and IRA accounts in the US. In the past many chose to bring most of their money to Israel, and decided to invest the excess cash in the local stock market. For recent olim, as I mentioned previously due to PFIC rules, this becomes more challenging. Some have chosen buying an extra property for investment purposes, but for most investors, tying up their entire net worth in property, without proper amounts of more liquid investments, is a mistake.
This means that it makes sense to leave this money in the US. If you are a do-it-yourself investor (DIY) then managing your own money from Israel is no big deal. But what if you want to use a professional to advise you and manage your funds? Should you look for someone in the US or someone local?
If you have someone that you know and trust in the US then it may make sense to use him/her. Keep in mind though that there are benefits to using someone local. He/she can coordinate with your accountant to make sure that your portfolio is tax efficient in both regions. Local advisors are in tune with the local culture. Without denigrating US-based professionals, when you start speaking to them about helping to buy apartments for children, they just don’t understand. After all, what may once have seemed to make sense living in Teaneck may not be appropriate for your new life in Modiin.
How should you choose a financial professional in Israel?
It’s very important to use an advisor who is licensed both in Israel and in the U.S. This will help ensure that you receive the appropriate advice and gives you as the client a legal outlet for any complaints you may have. There are a lot of advisors running around under the radar screen without the appropriate licenses, so be careful.
I wish you all an easy klita.
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.
