It's crucial to maintain proper financial conduct principles and make informed decisions about managing exposure to the local economy.
There is a growing concern about the future of the Israeli economy, especially in light of the potential legal reforms that may impact the country's democracy. This negative sentiment has led to practical measures such as individuals and companies spending less money, threats to lower credit ratings, and a decrease in investments and donations. Additionally, the world is currently facing several economic challenges, including the ongoing effects of the COVID-19 pandemic, the war in Europe, the energy crisis, inflation, and interest rate increase.
Given these challenges, it's crucial to maintain proper financial conduct principles and make informed decisions about managing exposure to the local economy. Exposure to the local economy can be divided into three elements:
While managing exposure to the local economy in the broad aspect involves strategic decisions that depend on the unique characteristics of each family, this article will focus on managing exposure to the capital market and currency.
A key principle in investment management that is always important to maintain, but especially during times of economic uncertainty, is the principle of dispersion. Proper investment planning should include diversification across multiple parameters, including types of assets, geography, currency, management, and linkage.
To manage exposure to the Israeli capital market, it's important to assess what percentage of assets are invested in Israel, taking into account all assets including money, deposits, securities, funds, and other assets. Even in good times, it's not advisable to be overly exposed to the Israeli capital market, as it's heavily influenced by geopolitical challenges and not as closely linked to the global economy as other markets. Fund managers typically follow the principles of diversification and invest a significant portion of the fund's assets abroad to mitigate risk. For example, the training fund "Altschuler Shechem Shares" had an exposure rate abroad of 83.1% in January 2023, and the training fund "Yilin Lapidot Shares" had an exposure rate abroad of 71.7%.
It's also important to maintain some exposure to foreign exchange in order to spread risk and contain it during periods of inflation or other local shocks that are usually accompanied by a devaluation of the shekel. However, it's important to be cautious about overexposure to a particular currency, such as the US dollar, as individuals live and consume in NIS and need diversification in any case. Fund managers typically factor in foreign exchange exposure when investing assets abroad. For example, the exposure of the "Altschuler Shechem Shares" fund to foreign exchange in January 2023 was 50.3%, and that of "Yilin Lapidot" was 26.6%.
In conclusion, maintaining geographic and natural dispersion of financial assets is always beneficial. While fund managers and financial planners typically follow the principles of diversification in their investment policies, it's important to check the geographical and monetary distribution of assets in an overview that includes all assets. This will help mitigate risk during times of economic uncertainty and ensure a diversified investment portfolio. However, it's important to note that the contents of this article are educational in nature and do not constitute advice or a recommendation to perform or prevent the performance of any action. It's always best to seek investment and pension advice that takes into account the unique needs of each individual.