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Only five years ago it did not really affect us. If world markets went crazy, it really only affected the banks, brokers and sophisticated investment managers.

But last week it was already a completely different story. Every Israeli with a provident fund, a pension plan or an investment in a life insurance policy suffered losses last week from the upheavals in the world's financial markets.

Most of these losses came from investments in the local stock and bond markets, which joined the foreign markets in their downhill slide, but part came from overseas.

Yes, between 10% and 20% of our Israeli portfolios - our long-term savings - are invested in foreign financial markets. Provident fund assets are 11.8% invested abroad, as are 13% of the new pension fund investments and 20.7% of the investments of participating in profits whole life insurance policies, which are used for retirement savings.

At the beginning of the decade we had almost no investments overseas, but since then the investment policies of those who manage our long-term savings have changed and the foreign component of our portfolios has steadily increased, with the encouragement of the Finance Ministry.

It would seem that now is the time to complain about those people who sent our retirement savings out of the country, since the present crisis is totally foreign.

The Israeli economy is in excellent shape. Economic growth is high and unemployment is low, fiscal and budgetary policies are being managed properly and even the major public corporations are doing well. There is no local cause for the sinking stock market in Tel Aviv.

The only reason for the deep dive is what happened around the world: The U.S. is teetering on the verge of a recession and world markets are quaking in fear. We, of course, are part of the globalized world economy, and that is why we have joined the party.

It turns out we have the honor of getting double portions of the losses: once as part of our overseas investments, and again when the Israeli economy gets hit hard by what is happening abroad, since we are now part of the global economy.

But the bottom line is that we would not have been any better of if all our investments were here in Israel.

We would still have been hit with losses, in proportion to those of the Israeli financial markets.

Investing our savings overseas was intended to protect us from situations where only the Israeli economy suffered, for example in the event of a deteriorating security situation, an earthquake or other genuine local crisis.

In all of these cases our foreign investments would have helped offset the losses in local markets and allowed us to better protect our savings.

The truth is that while our overseas investments have hit a new high they are still only a small share of our savings.

Belgian investors keep 47% of their savings offshore, while Irish savers have invested 40% of their assets abroad. Dutch investors have sent 46% of their money out of Holland.

The theory is that any Israeli-only investment portfolio is like holding shares in only one stock: It can provide a very nice rate of return for a certain time, but over the long haul only diversification can provide high yields without much volatility.

Overseas investment, despite global shocks, is still the safest way to reduce our dependence on the Israeli economy and diversify our investments to reduce risk.