I’m a reader and when there’s something I want to learn about, I tend to dive in deep. So no surprise, when years ago when I was interested in learning about finance and investing, I checked out – and read – every single book on the library shelf. Literally.
My takeaway from all that reading came down to two points: 1) Since very few people can beat the stock market, the simplest approach for the average person to take was to ‘buy the market’ (ie a fund that represents the market). 2) Over time the market goes up and if you do dollar cost averaging you’ll generally do well. Don’t panic during downs, don’t get euphoric on ups, keep your emotions in check and keep in mind the history of the market.
I did different things to help our children learn about saving and investing money when we were living in the US. We lived a very frugal life, but always put something aside a little something to save and invest. That was helpful when we suddenly decided to make aliyah.
When I moved to Israel, I didn’t understand how the financial markets in this country worked, so I put any thoughts of investing to the side. That would have been necessary in any case since we went through a very challenging time financially when starting over here and honestly didn’t have any extra to put into savings. It was a major accomplishment to have stayed out of debt during those years! So my interest in investing money went completely dormant.
——————————————
A couple of years ago, I began wondering what the financial consequences of worldwide shutdowns would be on the global economy. I began listening to different financial podcasts, with my goal being to get a sense of how events affect financial markets, and to consequently make responsible choices for my family.
Almost exactly a year ago, I talked to my husband about my concerns – the potential for significant inflation and the possibility of a major stock market correction in the following two or three years – and we discussed his pension funds. We had put our financial future into the hands of some anonymous fund manager that we don’t know, who doesn’t know us, who will get ample compensation regardless of how our funds do.
To answer some of our questions, he met with the contact person at his company for the pension funds. While I didn’t get specific answers to some questions I had (I wasn’t there to ask my questions!), the meeting clarified how much we could expect monthly after retirement. The rep gave us an optimistic number and told us we’d have to supplement our income even in the best case scenario. That wasn’t surprising, seeing that we didn’t start saving for retirement until after we made aliyah.
I wasn’t worried about the supposed shortfall of the optimistic scenario. Those numbers could be doable, albeit tight. What did concern me was the potential impact on our retirement funds if the market took a big extended hit. Was it likely to recover in time for us to benefit? The market has always rebounded, but it takes time. After the Great Depression, it took 25 years until the market got back to what it had been right before the crash. Yes, that’s an extreme example. Despite my understanding of the two key points I summarized regarding the market above, which would lead me to keeping the funds invested and trusting the market to recover, I kept asking myself if we were gambling to let our funds stay invested in the market at our age?
I don’t know if it was due to a gut feeling, being a fiscally conservative person or being paranoid because of all the podcasts I listened to but I felt very strongly about this. We began to talk about withdrawing the funds, but just opening that topic was a scary thing for us to consider. When you have retirement money invested with a professional, it feels like you’re safe, that you’re going to be taken care of. That’s what everyone does and doing what everyone else is doing is reassuring.
However, I haven’t found in any other area of my life that institutions care more about me, or do better for me than I or my specifically chosen representatives can do for me. This opened a thought-provoking and ongoing discussion between my husband and me for weeks.
After a couple of months, my husband was ready to withdraw his funds. He paid a heavy penalty for early withdrawal (I don’t remember now if it was 30% or 35%). It’s not fun to see the original sum be dramatically whittled down like that. A month after requesting to cash out his pension, the remaining pension funds were deposited in our bank account, and I felt a weight had been lifted from me.
In the last couple of months, I’ve seen a lot of people talking about losing 25 – 40% of their pension funds, and now they’re wondering if they should pull their money out and pay the penalty fees on what is left, or leave it in the market and hope it’s going to recover. I don’t know what our funds would look like now if we hadn’t withdrawn them, and I don’t know what they would look like in eleven years if we left them invested. Taking them out could have been the worst possible thing to do with our money, and only time will tell. However, I’m comfortable with our choice regardless of which scenario plays out, and am glad to have pulled them out when we did.
I’m not a financial advisor and not offering advice to anyone. As with everything else I write, I’m simply sharing my personal experience.
Avivah
We think a lot about this – mostly in terms of our US retirement money, which while not enormous is much more significant than our Israel pension money. We worry not only about possible market crashes but also about mishandling and overreaching management fees that may be as much or more than interest/dividends. What stops us is mostly that we would be taxed at such a high rate. We don’t own property and I keep feeling like we should move the US money into land or property in Israel but so far we have been hesitant to do this. There is no easy answer of course but I’m glad to hear we are not the only ones thinking about this!
That is risking a big loss. You must have been very sure of yourself to take this step. I wish you much hatzlacha!
I know what we did looks risky and even fool-hardy to many. On the other hand, a number of people have told us they’re having thoughts of doing the same, for the same reasons that we took the actions that we did.
It would seem very risky based on the assumptions that we’ve all been operating under as to what returns we can expect from the stock market. We forget that past performance is no guarantee of future results. In light of a number of things taking place economically, I felt it was more risky to keep the money there at this time.
We didn’t take the money out to spend, but to invest independently, which we did several months later and feel very comfortable with our choice. My husband continues to put money monthly into his employer-matched pension account.