The common wisdom being bandied about by analysts is that Greece needs a bailout and must remain part of the euro zone or else a global financial Armageddon will ensue. According to the Sydney Morning Herald, International Monetary Fund Managing Director Christine Lagarde said during a speech in Germany, “We need a larger firewall,”warning that otherwise the world could slide into a “1930s moment” of isolationism, which led to the Great Depression.”

I guess the question is whether this is actually true. After all, the IMF has a tradition of messing up these situations. Just look at the Asian financial crisis of 20 years ago, or the Latin American crisis of a decade ago. The IMF prescription in these crises exacerbated and prolonged the problems for more time than was needed.

The IMF and the European Union are pushing for a bailout of Greece in exchange for austerity measures. The problem is that the bailout money they are talking about is barely enough to keep the country solvent for a month or two. It sure seems like a black hole. Keep pumping more and more money into Greece in order to delay the inevitable. Is this sound policy? Is this the solution to prevent a “1930s moment”? 

Don’t cry for me Argentina 

A decade ago, another country was in similar dire straits as Greece is today. No, I am not talking about Israel, which was certainly teetering on the brink, but rather Argentina. There are many similarities between Greece and Argentina, and maybe we can learn from the Argentinean model and apply it to Greece.

Mario I. Blejer, a former governor of Argentina’s central bank, and Eduardo Levy-Yeyati, one of its former chief economists, jointly penned an opinion piece for Bloomberg about the Greek crisis, and they pointed to a lesson that can be learned: 

“The first has to do with the timing and size of the debt exchange. In this regard, Argentina’s lessons are clear: Delaying the unavoidable and then defaulting belatedly, unilaterally and in a disorderly fashion, imposes significant costs in real activity, with no visible benefits. True, markets need to see some pain to be convinced of a country’s willingness to pay, in order to accept a default. But Argentina, like Greece now, went way beyond that. By the time Argentina defaulted in 2001, it had experienced four years of recession and its gross domestic product had declined by about 22 percent. How much pain should Greece endure?” 

Bob Adelman wrote in the New American about the similarity between then and now: “The Argentine crisis had been brewing for years (some say as far back as 1913 when the welfare state began to be installed) but came to a head when a new government was elected in December 1999 and found itself facing years of mismanagement and fraud left over from the previous administration, including much higher debts and deficits than had been claimed. In December of 2000, Argentina fell for the siren song of the IMF (“we’re here to help you”) and received its first bailout.

“IMF aid made the problem worse. The Argentine currency, the peso, was tied one-to-one to the American dollar and had become grossly overvalued. With foreign trade declining and interest payments to the IMF increasing, the government couldn’t continue supporting the peso. An overnight devaluation of the currency took place, dropping the peso’s purchasing power by 40 percent over one weekend and beginning an inflationary spiral that reached an annual rate of 5,000 percent by the summer of 2002.”

Just do it 

Instead of punting the problem down the road another three or four months, why not just admit the truth: declare bankruptcy and start fixing the problems like Argentina? By starting off with a clean slate and a devalued currency, the Argentines where able to extricate themselves from the mess, and from 2003-07 they averaged 9% growth. It wasn’t easy for them, but in the end Argentina has a flourishing economy.

Greece should declare bankruptcy and leave the euro so that it will be free to take the steps it needs to get its economy back on solid footing. It should bring back the drachma, let it devalue and then export its way out of the mess. Greece can’t do that if it is tied to the euro and constrained by EU rules. No one says this will be easy, but it will ultimately lead to living within its means and having a solid economy.

Ansgar Belke, a professor at the German Institute for Economic Research in Berlin, said: “What happened in Argentina proves that it is possible for a country to come back after bankruptcy and once again play an important role in international financial markets. I always supported a restructure of debt in Greece. The damage would not be as grave as is commonly feared. Greece is a relatively small country. A restructure would stagger a few German and French banks… but this scenario is more sensible than the massive credit that we’re currently giving.”

Aaron Katsman 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, SIPC, MSRB, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com  or email aaron@lighthousecapital.co.il.

What does the Super Bowl have to do with your finances? Aside from spending a lot of money on food and drink to eat during the big game, it’s the need to have a good quarterback (QB). The common denominator between the New York Giants and the New England Patriots is that they both have top-level QB’s running their offenses.

With more and more investors choosing to use multiple financial advisers to manage their money, it’s become more important for investors to have one adviser that oversees everything that is going on to make sure that the investor is investing efficiently.

While it used to be that investors chose to work with one adviser, or do it themselves, the recent economic crisis has changed that. According to Cerulli Associates, a Boston-based research firm, “Among the entire advice-seeking universe, 27 percent of households use multiple advisers.

Narrow that range to households with $2 million to $5m. to invest and the percentage climbs to 35%.

Among those with more than $5m. to invest, 58% use multiple advisers.

“In the last three years, the pace has accelerated, with the average number of adviser relationships per household climbing as investors who handled their own finances turned to advisers for the first time, and those already using advisers added to their stable.

“In 2008, investors kept an average of 0.67 adviser relationships, and that figure climbed to 0.83 by 2011. The increase was more marked among high-net-worth clients. Households with more than $5m. to invest saw their adviser relationships grow to 2.25 this year, from 1.51 in 2008.”

No Communication

The reason that more investors are using multiple advisers is because they want to hear different opinions.

I have some high-net-worth clients who send me information that another one of their managers sends them, and I can only assume that my opinions are relayed to his other advisers, as well. In this way the client can implement various investment strategies that suit the various opinions of his advisers.

Sounds good, no? In theory it’s not a bad way to go and it’s basically a different style of diversification.

Instead of one portfolio being diversified between various asset classes, you diversify with various advisers and their strategies.

The problem, as often is, is not in the theory but in practice. Each manager is doing their own thing and no one ends up speaking to the client to see what the goals and needs of the client are, and if they are going to be changing. Ultimately the client ends up with a portfolio that may have been suitable for him 10 years ago, but bears little relevance to his current financial situation.

I recently met with a couple that made aliya three years ago. They had accounts with three separate managers.

When I asked the couple when they last spoke to any one of their managers, they responded that it was a few months after their aliya. Yet over this time, their needs had drastically changed.

When they had first opened their accounts, they were still living in the United States, earning high salaries.

They just wanted their money to grow. Now in Israel and with a changed lifestyle, they need to generate income to supplement their much lower salaries. Due to the lack of communication, none of their managers new of their changed investment goals, and they ended up with a portfolio far too aggressive for their new situation.

Financial adviser as QB

The most effective solution to this problem is to have one adviser as the dedicated financial QB. When a client has multiple accounts, a financial QB will have a broader view of the situation in general. He will not just focus on one account, but will assess everything and see how the entire financial situation fits his client’s goals and needs, and makes sure that each manager is doing what they are supposed to be doing.

Hut Hut Hike

Before meeting with your financial QB, define your goals and needs, and make a list of your assets. Then your adviser can assess all your different investment accounts, property and any other assets to see if you are invested in a way that you can accomplish what you set out to do.

He can also determine if you need to make changes to get your investments in line with your goals.

There is nothing wrong with using multiple managers. Just make sure that you have a financial QB that will oversee all of your investments and help you become a successful investor.

aaron@lighthousecapital.co.il

Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.

Remember the US Dollar? Pundits across the financial spectrum were writing off the greenback due to the huge Obama deficits, the continued printing of money, rising commodity prices and that the rest of the world was catching up to America.

Well, what a difference eight months makes.

Throw in a European debt crisis and all of the sudden the greenback is once again king currency. The dollar has moved up by 14 percent against the euro, 8% against the Australian dollar (though it was 15% up a few months ago), and even against our beloved Israeli shekel it has rocketed up by 13% in the last six months.

Does this upswing portend a bigger trend, or is the move destined to be short-lived? There is no real way to answer that question.

My mother used to be fond of saying that “prophecy was given to fools.” Trying to predict currency behavior over the short term is near impossible.

What I can say is that many of the reasons that analysts were anti-dollar still hold true today. If the world can get past the European debacle, and some normalcy and calm return to the markets, it wouldn’t be a surprise to see another round of dollar weakness.

What should we do?

For investors who need some more income to meet their retirement goals, or who are looking to diversify the fixed-income part of their portfolios, it may be time to start thinking global. The fact of the matter is that interest rates in the US are at historically low levels, and the Federal Reserve has come out and said they are in no hurry to change that.

For fixed-income investors, the 1%-2.5% that bonds are yielding doesn’t cut it. To generate much-needed income, investors have turned to high-yielding, dividend-paying stocks that, despite their current popularity, are ultimately stocks and can get crushed like any other stock (e.g., Citigroup, General Electric et al.)

Foreign-currency bonds

As such, investors may want to take advantage of cheap currencies and higher yields. If a 2% return is not enough to meet your needs, take a look at bonds that trade in foreign currency. While it used to be difficult to buy these bonds, nowadays most brokerage firms have the ability to purchase bonds in various currencies.

For example, a highly rated (AAA) bond in Brazilian reals can yield over 8%. A similar bond in Australian dollars will be over 4.5%. What makes these bonds even more attractive is that the currencies have been weak of late against the US dollar; only do you get the high interest rate, you also have the potential to profit from the appreciation in the currency if some normalcy returns to the market.

If you can get a 5%-8% interest rate and a stable currency, you are way ahead of the game and will be able to meet your retirement goals with even less than $1 million in the bank.

For investors who want this exposure but are gun-shy about actually buying foreign-currency bonds, there are plenty of ETFs out there that can do the job. The iShares S&P/Citigroup International Treasury Bond Fund (IGOV)or the iShares JPMorgan USD Emerging Markets Bond Fund (EMB) are both worth looking at.

Global bond funds

For investors who would rather not speculate in specific currencies, but would prefer professional management as opposed to the more-passive ETFs, one can invest in a global or an emerging market bond fund. This is a managed portfolio of bonds that are denominated in multiple currencies. The advantage of this route is that there is a paid manager who is an expert in currencies who manages the portfolio for you. In addition, since it’s a bond portfolio, you also get monthly interest payments. However, be aware that a fund like this can also lose money and is not guaranteed.
It is important to note that past performance is no indication of future results, and with both of these options, if the US dollar gets stronger against the world’s major currencies, you can end up losing money. I am not saying to put all of your net worth in these types of currencies, but some exposure can potentially make a big difference in your retirement.

Speak to your financial adviser to see if you can enhance retirement income by incorporating foreign bonds into your portfolio.

Aaron Katsman 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, SIPC, MSRB, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com  or email aaron@lighthousecapital.co.il.

As more and more baby boomers hit retirement age, and with interest rates at record-low levels, the question is how retirees can generate the income they need to meet their expenses.

I’d like to focus on a popular strategy used by financial advisers: the bucket strategy.

This strategy became mainstreamed after the book Buckets of Money: The UltimateGuide to Income for Life by Ray Lucia became a best-seller. This is not a review of the book. I liked the book and have used a variation of the strategy for my clients for many years. My only issue with Lucia – and reader beware – is that he uses certain investments (annuities and non-traded REITs) that pay huge fees to advisers and are probably not in the best interest of the client.

Conventional wisdom 

Common financial-planning wisdom says that in order to generate your desired retirement income you need to withdraw 4 percent from your portfolio each year. Let’s say that at retirement you have saved $400,000. Taking into account pensions, social security, etc., you need another $16,000 to supplement your income. The common wisdom would say invest 60% of you money in stocks and 40% in bonds, and based on historical data this will generate the needed $16,000. The problem with this strategy is that what may have been true 30 years ago is irrelevant today.

Financial advisers love to trot out data and use fancy computer simulations that say based on decades of data and running over 1,000 simulations, if you follow the allocation mentioned above (60/40) you will have more than enough money to live out your life. The problem is that 30 years ago interest rates were double digits and today they are close to zero.

In addition, these models use an 11% annual return on stocks as a given. We have just been through a 10-year market period that produced a zero return. This means that retirees are drawing down their portfolios as stock prices are very low. Not exactly the time you want to be selling.

Due to today’s investing climate, the old-school conventional wisdom has become very problematic. It’s very questionable whether retirees will be able to achieve their goals by following the old strategy. This has led advisers to look for new ways to help their clients generate the income needed.

Fill your buckets 

The bucket strategy calls for investors to divide their money into three buckets: a short-term liquid bucket, a slightly higher-yielding mid-term bucket and then a more-aggressive long-term bucket.

Keep in mind that there are many versions to the strategy.

When starting the strategy take a look at current market conditions and then set up the buckets. Most variations call for each bucket lasting 10 years. Based on current conditions, I would say investors will be better served to cut the first bucket down to five years and add the remaining years to the middle bucket.
Let’s go back to our example based on a $400,000 portfolio and a 65-year-old freshly retired individual. The investor would take $80,000 in the first bucket and invest it in very liquid, very safe investments like CDs, inflation-protected government bonds and highly rated corporate bonds. It would be set up so that each year $16,000 becomes free. Any money left after five years would be transferred to bucket No. 2.

The next bucket would have $240,000 to start with. It again would be invested so that $16,000 comes due every year for the next 15 years. Here a combination of highly rated corporate bonds, hi-yield bonds, international bonds, preferred stocks and government bonds would be used. The extra income generated from these investments should help preserve the value of the money versus inflation and leave over money to be invested in the third bucket.

Bucket No. 3 is the growth bucket.

Here you have at least $80,000 that has been invested for 20 years before being tapped. Using a dividend-growth strategy and a mix of international stocks has the potential, over 20 years, to appreciate significantly. A 3.5% annual return will basically double the money ($160,000), and the hope is that after 20 years the market should do better than 3.5%. Even if it doesn’t happen, you will have 10 years of money to draw down.

You have now made it to 95 years old.

We should all merit to live 120 years, but for financial planners, making it to 95 is considered a success. This is a very brief synopsis of the strategy, so speak with your adviser to see whether the bucket approach is right for you.

Past performance is not a reliable indicator of future results. The S&P 500 index measures large-cap stocks and US stock market performance of leading companies in leading industries. An investor can not invest directly in an index. 

Aaron Katsman 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, SIPC, MSRB, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com  or email aaron@lighthousecapital.co.il.

If you are an investor, the best investment you could have made this year was to buy a few bottles of Rolaids. With all the stomach-churning volatility that has symbolized the stock market for 2011, the only relief has been some antacid.

All joking aside, to say that 2011 has been a tough year for investors is an understatement. Outside of the US, most markets are down double digits for the year. It’s not just losing a bit of money that has investors feeling jilted; rather, it’s been the way that markets have behaved, which has chased many well-meaning investors from the stock market.

Violent, day-to-day market movements have left investors wondering if there is any way to try and smooth out the ride.

This volatility is precisely why investors in the stock market need a long-term horizon to be able to withstand all of the market ups and downs. Here are three investing tips that may help investors remain sane during market swings: 

DIVERSIFY 
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 layman’s terms, don’t put all your eggs in one basket. But it’s important to remember that diversification does not assure against a loss.

If you include bonds 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 your 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.

Last week, I wrote about how the “so-called” middle-class tax cut is going to cause damage to both the Israeli economy as well as to those in the lower and middle classes. Now it seems like the Finance Ministry, led by Yuval Steinitz, is trying to outdo itself by dramatically increasing the taxes on luxury cars and apartments.

My gut tells me that this is only the beginning as more and more Trajtenberg committee recommendations are enacted. Measures to disincentivize job-creators, as well as those trying to climb the socioeconomic ladder, is sure to backfire by stifling capital investment and adding to the unemployment rolls.

The ultra-rich like Nochi Dankner and Shari Arison will be able to use their battery of accountants and lawyers to figure out ways to shelter their money. It’s the small and mid-sized business owners that just saw their corporate taxes increase. If they are fortunate enough to make a profit, the money that they take out of their businesses as a dividend will be taxed at a higher rate as well.
Redistributing wealth from the rich to the less fortunate doesn’t really help the less fortunate. What helps them the most is a job and incentives to invest, so that they can be enabled to do what it takes to grow their net worth and exit the poverty cycle they are relegated to. If Daphni Leef and her protesters have their way, those in lower income levels have little chance of ever escaping their current economic conditions. No society has ever been taxed into prosperity.

Required Reading

Before any more damage is done, I urge the local policymakers to read the defense of capitalism penned by former Florida governor Jeb Bush, the brother of former president George W. Bush, which was published in a recent Wall Street Journal editorial titled “Capitalism and the Right to Rise.”

In lamenting the current state of economic freedoms, he writes, “Freedom of speech, for example, means that we put up with a lot of verbal and visual garbage in order to make sure that individuals have the right to say what needs to be said, even when it is inconvenient or unpopular.

We forgive the sacrifices of free speech because we value its blessings.

“But when it comes to economic freedom, we are less forgiving of the cycles of growth and loss, of trial and error, and of failure and success that are part of the realities of the marketplace and life itself. Increasingly, we have let our elected officials abridge our own economic freedoms through the annual passage of thousands of laws and their associated regulations.

“We see human tragedy and we demand a regulation to prevent it. We see a criminal fraud and we demand more laws. We see an industry dying and we demand it be saved. Each time, we demand, ‘Do something… anything.’”

Bush hit the nail on the head. A few days ago, I got a letter (sent in a Knesset envelope – at taxpayers’ expense) from a Knesset member who will remain nameless. He writes about how much of an impact he has made in 2011, and all the laws that he authored or co-authored, assuming that the sheer quantity, by definition, has greatly added to Israeli society. Could it be that he actually has harmed the very people he is claiming to have helped? Maybe the best thing our elected officials could do is do nothing and stop interfering in our quest for a better life, both individually and for society in general.

The right to rise

This is a term started by US Congressman Paul Ryan.

The point is that governments should create a landscape that breeds success. How does this apply to Israel? Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz should stop pandering to those who believe in equality of outcome; rather, they should create a system that allows people to be the best that they can be.

In the words of Bush, “We either can go down the road we are on, a road where the individual is allowed to succeed only so much before being punished with ruinous taxation, where commerce ignores government action at its own peril and where the state decides how a massive share of the economy’s resources should be spent. Or we can return to the road we once knew and which has served us well: a road where individuals acting freely and with little restraint are able to pursue fortune and prosperity as they see fit, a road where the government’s role is not to shape the marketplace, but to help prepare its citizens to prosper from it.”

Aaron Katsman 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, SIPC, MSRB, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.

Not even mentioning the “Lost Decade” of investment returns that I have mentioned so often, the recent market carnage has sent those on the verge of retirement scrambling. After having worked so hard and having “followed the book” when it comes to saving for retirement, many pre-retirees have seen their investment portfolios (not to mention their real-estate holdings) drop significantly in recent years, leaving them wondering what can be done to have enough money saved up to retire. They are in what is called “catch-up” mode.

Here are three steps that can be taken to get you back to where you need to be financially to retire. Before I present these tips, I would like to caution investors against trying to make back their money by becoming too aggressive with their investments.

Recently I met with a do-it-yourself investor who said, after having taken a bath in the market, he had decided that to hit his retirement goals, he needed to make back all his money quickly. He then proceeded to make very aggressive investments; not only did he not make his money back, he added insult to injury as his portfolio dropped another 20 percent. I can’t tell you how often I hear this same story.

Keep working

While this may not be the most cheery advice, it may be the most effective. Delaying retirement by a few years can be a huge factor in being financially able to retire. By working, not only do you push off tapping your retirement funds, but you can keep saving for a couple of more years.

According to the Oblivious Investor website: “Whether it’s sticking it out for an extra couple years at your current job or picking up part-time work in a more enjoyable field after leaving your job, retiring later is often the highest impact thing you can do for your retirement finances. Each additional year of work is one more year to accumulate savings and one fewer year of spending from your savings.”

Maximize your savings

You might say you can’t save any more money. As you get closer to retirement there is a good chance that your kids may be out of the house, which means you can save on tuition. It’s also important to create a budget where the first expense item is to “pay yourself first.” If you create a disciplined budget with an increase in built-in savings, you will be surprised at how much you will be able to sock away. It may not be fun, but you have no choice if you want to be able to retire.

An article about retirement in The Wall Street Journal said: “The place to start is by being aggressive about saving. More is always better, but even relatively small amounts of money can make a difference. And with the kids out of college and hopefully out of the house, being disciplined about budgeting and potentially downsizing a home sooner rather than later could free up helpful amounts of money from each paycheck.

“Financial Engines looked at scenarios for a 50-year-old earning $65,000. Putting 6% of that salary per year in a mix of stock and bond funds would likely lead to a portfolio at age 65 that should generate $31,700 of income annually for life. Bump that savings rate up to 8% – an additional $100 each month – and income at age 65 would be $33,500. That’s an additional $150 more in income per month.”

Delay Social Security

While you can start taking Social Security benefits at age 62, for those still working and trying to build savings for retirement income, it pays to wait on taking your benefits until you reach the age of 70.

According to Forbes: “You can start drawing early retirement benefits from Social Security at age 62, but it pays to wait, especially if you continue working past that age, and is crucial if you’ve begun saving late. Delaying the start of Social Security benefits until age 70 can boost the monthly payout by as much as 80%” A former coach of the Seattle Seahawks, Chuck Knox, used to say: “You have to play the hand you’re dealt.” While it may not be how you envisioned your preretirement years, if you take the tough, necessary steps now, you can still enjoy a financially independent retirement.

Aaron Katsman 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, SIPC, MSRB, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com  or email aaron@lighthousecapital.co.il.

There has been a lot of talk recently about the move back to buying locally, and supporting local, community businesses. As I write this from rainy Seattle, Wa., the media is filled with reports of efforts to get people to forgo doing their Christmas shopping at large national chains and buy from local businesses. It’s not just commerce. Probably the leader in the move to ‘go local’ is farming. Wanting healthier organic grown food, consumers have made a decision to start supporting local farms and buying locally grown produce. Privately held companies like Farmigo (that has Israeli ties) are leading this revolution. Farmigo’s premise is “that if small complementary farms in the same geographic area could collaborate with one another in a simple and efficient way, the food needs of the local community would be met and the farms would continue to develop and prosper.”

This move to ‘buy local’ has recently seen roots planted in the banking industry, believe it or not. Upset at rising fees, lack of personal service and fear over solvency, consumers in the U.S. have started opening accounts at local credit unions and community banks. Recently there was actually a day dedicated to ‘Move your money’. This ‘Move your money’ project,  encouraged Americans to open new bank accounts at smaller banks and ditch the large banks, and send a message to the large banks that their business practices will no longer be appreciated. In a recent Yahoo Finance article Steve Streit CEO of Green Dot, said, “large banks simply aren’t set up to deal profitably with a large chunk of the American consumer base — without nailing them with huge fees. Banks face a challenge of servicing customers that don’t take loans and don’t generate fees through other services, especially at a time of generally muted interest rates. On deposit consumers that just want to deposit $500 a month, “not only are banks not making money on them, they’re losing money.” He goes on to say, “As a result, banks feel compelled to level the kind of fees that alienate many consumers. If you don’t make a sufficient amount of money and don’t have a good enough cash flow to maintain minimum balance, you might get hit with minimum balance fees or monthly fees. If you make $8 or $9 an hour, and you get with $70 in fees per month, that’s painful.”

Can you profit?

While local Israeli consumers will not be able to benefit from moving their bank accounts to smaller banks (because the country only has 6-7), investors may be able to potentially profit from the development. I have written in this column previously how much I  like regional U.S. banks as an attractive long-term investment. Well the reasons I like regional banks( clean balance sheets, increasing dividends, and a focus on classic banking) applies to smaller community banks as well, and if consumers actually create a sustainable movement to ‘go local’, community banks may provide for an intriguing investment.

According to a recent report in Zacks, “Yet for those seeking to maintain a well-diversified portfolio, complete avoidance of the financial sector seems unwise, especially if the market comes back to normal in months ahead. Furthermore, many corners of the financial market are not nearly as impacted by these European concerns as their big bank counterparts. This suggests that while they may have been beaten down by the weak economy, they could be due for a surge in months ahead as more investors realize how cheap some of these securities have become.” The report continues, “Thanks in part to this deep value, as well as the heavy concerns impacting big banks but not their more community-focused cousins, the community bank index has also outperformed more popular and larger cap focused securities on the year.”

How to Invest

Investors wanting exposure to this sector could either buy a broad based ETF which invests in community banks like the First Trust’s NASDAQ ABA Community Bank ETF (QABA) or you could invest in specific bank stocks. While I am not recommending any of these, investors could look at stocks like Peoples United Financial (PBCT), Signature Bank (SBNY)-which used to be owned in part by Bank Hapoalim- or Zions Bancorp (ZION).

Speak with your advisor to see how you can implement the move to community banks in your investment portfolio.

Aaron Katsman 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, SIPC, MSRB, NFA, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com  or email aaron@lighthousecapital.co.il.

Over the last 6 trading days the S&P 500 index has dropped by almost 8%. The last 7 months have certainly been disastrous for investors, and many would argue that we haven’t seen the worst. With no end in sight to the European economic mess, and anemic US growth, many stock prognosticators are calling for gloom and doom in the markets.

Chief ‘gloom and doomer’ Paul Farrell of Marketwatch.com says, “So don’t kid yourself folks, recent economic and market “ugliness and violence” not only won’t end soon, it’ll get meaner and meaner for years after 2012 elections … no matter who wins. Only a fool would believe that a new bull market will take off in 2013. Ain’t going to happen. That’s a Wall Street fantasy. Fall for that, and you’re delusional. “ 

I don’t want to get into it with Mr. Farrell though I tend to almost always disagree with him, but for current retirees or for those investors fast approaching retirement, attention should be paid to his prediction and portfolios should be adjusted accordingly. 

Young and the Restless 

This column is not for the retirement crowd. It’s for those in their 30-40’s who have delayed planning for their retirement. And for them I say that their procrastination has the potential to be very profitable. What’s the old phrase; ‘It’s better to be lucky than good’? Well nothing could be truer for those who have delayed investing for the future. While markets may continue to drop, if you can invest in good, profitable companies or countries with strong economic fundamentals, and get them at a 20-30% discount, you are way ahead of the game. 

Well what about Farrell you ask? Isn’t it true that the world doesn’t look so good economically right now? Well if you look at some recent data, things actually seem to be getting better. I am not saying that ‘happy days are here again’ but the sky isn’t falling. Keep in mind that it wasn’t too long ago that everyone was predicting a double-dip recession. Well according to Daniel Gross at Yahoo Finance, “Take the broadest measure: GDP. After growing at a .4 percent annual rate in the first quarter and a 1.3 percent annual rate in the second quarter, the Commerce Department today gave its second answer on third quarter growth: 2.0 percent. That’s a downward revision from the previously reported figure, but it still represents a rising pace of growth — not a setting one. Macroeconomic Advisers, which provides real-time estimates of GDP growth, says the economy is growing at a 3.2 percent rate thus far in the fourth quarter.” Add to the mix September’s record exports, rising retail sales and a real estate market that appears to have bottomed, and maybe just maybe there is some light at the end of the tunnel.

For younger investors this could be a great time to invest. Keep in mind that things could stay volatile for a while, and just because stocks are cheap doesn’t mean that they can’t get even cheaper, but for those with a long-term horizon, the risk may very well be worth the reward.

What to Do?

As I have mentioned many times there is no such thing as ‘one size fits all’ investing. Even young investors need to define goals and needs and invest accordingly. That being said a portfolio that features both dividend producing stocks as well as a significant international exposure is a good approach. Stocks like Intel (INTC) which has amazingly actually appreciated this year, Johnson and Johnson (JNJ), Honeywell (HON) all fit the bill of solid companies with solid dividends above 3%. Brazil (EWZ) which is about to become the world’s 6^th largest economy, has dropped 30% this year and with continued strong economic fundamentals looks like a potentially good investment.

I am not recommending running out and buy these specific issues, rather these are ideas and should be researched and analyzed how they fit into your financial profile. Steep market drops have historically provided investors with the courage to invest, great long-term opportunities. For those thinking about long-term investing, now be the time to act. 

Aaron Katsman 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, SIPC, MSRB, NFA, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com  or email aaron@lighthousecapital.co.il.