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Bottom Shekel / Buy now or next year? By Eytan Avriel Tags: Israel News, securities 1. When to buy The one major question every hungry investor is asking himself this morning is whether the time has come to buy securities. Everyone, even the most pessimistic, is convinced that the prices of shares and corporate bonds are low these days. The average annual yield on the Tel Bond-40 index, for example, is 8.5%, linked to consumer price index (CPI). Such a yield is very high, considering the bonds in this index have good credit ratings. The prices of certain securities are not simply low, they are once-in-a-lifetime opportunities. Even so, while the optimists are talking about the possibility of a recovery and surging prices, the pessimists fear further declines, or a scenario in which prices remain low for a long time - perhaps even a year or two. Advertisement What to do? The answer lies in how an investor's mind works and how often he checks the status of the market. Investors who track the daily performance of the stock market, and check specific prices in the news and the forecasts can try to catch the market at its lowest point, or be ready with cash in hand, in the hope they will able to buy before prices rise. Still, even this type of investor must remember that the most experienced professionals have difficulty timing their transactions relative to the market's fluctuations, and catching a stock when its price is at a low. On the other hand, anyone who does not spend a few hours a day managing his assets should forgo such an attempt from the outset. The correct strategy for such investors is to buy into the market in fixed, monthly amounts. Do you have NIS 100,000 to invest in the capital market? Buy NIS 10,000 worth of securities every month for the next 10 months. That way you will be buying at the average level of prices throughout the crisis and the recession we are facing, without taking a risk on choosing an isolated point in time. What exactly should you buy? The usual: Exchange trade funds (ETFs) or mutual fund units. During normal times, mutual funds are less attractive than ETFs, due to the high management fees they charge, and we wouldn't recommend them. Now, however, since you are buying during a historic crisis, the ability of the fund managers to choose shares whose prices are particularly low could give the funds an advantage. 2. Lower costs and commissions Everyone has lost out in the current crisis, money is evaporating at investment houses, and the banks are anxious. Now is the perfect time to ask your financial service providers to lower their fees. Everything is open to negotiation, and the results will be determined by your willingness to switch banks or investment houses. You can probably get your bank to reduce its custodial fee (you certainly should not continue paying 0.5%) and the transaction fee on securities. Your investment house broker should lower your portfolio management fees, and even your provident fund management fees. Today the difference in the numbers may look small and insignificant, but over time, management fees are no less important than yields. 3. Portfolio structure Since share prices have tumbled so far, a securities portfolio today will bear no similarity to its makeup before the current crisis. A portfolio that began with 80% government bonds and 20% shares is closer to 90%-10% today, due to the erosion in the value of the shares versus the appreciation in the safer, government instruments. Is that really what you want? If not, you will need to rebalance your portfolio accordingly, and remember that stock shares and other volatile and risky assets are best purchased during a downturn, as long as you are sure you want to hold onto them for a long time - at least 5 years, and preferably 10. 4. No yield on solid instruments The current crisis has prompted many people to focus their financial activity on preserving the value of their principal, rather than on achieving high yields. Anyone approaching retirement age or who needs his savings in the next few years would do well to follow suit. Others, who may have bought solid, shekel-linked instruments in a panic in the past few weeks, should remember that even that route is no great bargain. Money deposited in the bank in a Makam short-term loan account or other shekel instrument will not earn more than 3%-4% per year, which is a negative yield in real terms, after an adjustment for the increase in the CPI. 5. Forget about the bourse Focus instead on your work. The recent wave of redemptions of mutual and provident funds indicates that many investors and savers have panicked and sold right when the market was at its lowest. This could be a mistake, not necessarily because the market will bounce back soon, but because those same investors are unlikely to discern the right time to reinvest their money. Most of the public that does not need money immediately would do best to think less about the bourse and its vagaries; not to track the daily value of investments, and certainly not to wallow in despair or develop anxieties. Instead, invest your energies in your work, and excel there. The greatest economic risk in the next two years will not be in the stock market, but rather from a recession and layoffs. Bookmark to del.icio.us   Forgotten peace French FM: I fear distracted world may forget Mideast peace process. Settlers vs. Shin Bet Daniela Weiss: Shin Bet behind attack on left-wing advocate prof. Sternhell.

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