The Jerusalem Portfolio versus Israel Bonds

 

 

Investment Characteristic
Charitable Giving Capability
Yes Yes No
Minimum Investment
USD 180 USD 36 to 25,0001 Typically USD 10,000
Liquidity
Highly Liquid Very low – Most bonds are held to maturity Low – Only during pre-specified times
Security Valuation Frequency
Near Real-Time during Trading Hours Very Infrequently – Only when a bond trades Quarterly
Safety
Considered Very Safe – highly diversified, long-term investment with track record and liquidity, albeit volatile in the short-term. Considered very secure by most analysis. Generally considered a highly risking and speculative asset class
Investment Type
Moderately Aggressive Conservative Very Aggressive
Regulatory Body
U.S. Securities & Commission U.S. Securities & Commission Israel Securities Authority
Insurances
SIPC3-Insured Brokerage Account Israeli Government No
Level of Diversification
Extremely Diversified4 None (Single Issuer) None-to-Limited5
U.S.-Based Investor Tax Reporting Complexity
Simple (Form 1099)6 Simple (Form 1099)6 Generally Complex (Schedule K-1)7
Foreign Asset-Reporting Requirements
None None Generally Required

 

Introduction

As an investor interested in Israel, you may access the country’s financial markets through various asset classes.  Of these, two of the most popular are Equities and Fixed Income, also commonly known as Israel stocks and Israel bonds, respectively.

 

The Jerusalem Portfolio (TJP) is one of the best ways to invest in the stocks of Israeli companies.  By being an investor of TJP, you will gain access to a highly-diversified basked of companies whose primary business originates in the State of Israel.  You gain access to professional management of an account specifically tailored to your needs.  All of this is provided to you via low-cost investments that are tax-efficient.  Together, a TJP investment provides the best of both worlds: Accomplishing the noble goals of investing in Israeli companies while meeting your long-term financial goals.

 

Israel bonds represent the debt that the Israeli government issues in order to fund its operations, social safety net, and even repayment of previously-issued debt.  Among the universe of sovereign bonds, Israel bonds are generally considered to be safe investments, owing to the country’s strong functioning of government, as well as its history of making payments on time during the country’s entire 70 years of existence.  Standard & Poor’s, a credit agency, recently issued a high AA- rating for the country’s debt. rated Israel’s

 

Generally one invests in equities if seeking long-term growth, appreciation and dividend income, and one should invest in bonds if seeking stability.  These generalizations apply to the considerations of TJP equity investments versus Israel bonds.

 

Comparison of Performance Characteristics

Before making an investment into either TJP or Israel bonds, one should carefully consider the differences between the performance characteristics of the two assets:

  • Level of Diversification
  • Liquidity
  • Security Valuation Frequency
  • Investment Type

Level of Diversification:

TJP: Consisting of multiple Exchange-Traded Funds (ETFs), TJP holds over 100 companies that are diversified by size, sector, industry, and exchange.  An Israel bond, however, has no diversification since it consists of just one issuer.

Liquidity:

TJP investors can liquidate their account at any time of any trading day.  The accounts hold securities which trade during standard US equity market hours which are 9:30 a.m. to 4 p.m. Eastern.    A sell order requires 3 business days to disburse cash raised.  So a sell order on Monday can typically hit an investors account by that Thursday.

  • There is no “lock up” or commitment time – an investor can invest one day and liquidate the next. We regard this as being totally liquid.  Of course, TJP portfolios are designed for long-term investors, we want to allow investors to withdraw their funds at any time for any reason.   There are no trading costs and therefore liquidity is also “penalty free”.
  • Israel bonds, on the other hand, after being purchased may be difficult to sell at a later time.. This is both by design and function.  A buyer of an Israel bond is expected to loan their investment to the Government of Israel with repayment of principal at a stated time.  Selling an Israel bond to another investor is quite difficult and rarely done.  We regard Israel Bonds as being quite illiquid.

Security Valuation Frequency:

  • A TJP investor has access to near-real-time pricing in his or her account via the website of the account’s custodian.
  • Contrast this to an Israel bond, when the only pricing that might be available is that of the last trade, which likely occurred a long time ago. For many Israel bonds, no pricing may be available at all.

Investment Type:

  • TJP accounts consist exclusively of equities or stocks, which by their very nature, may have significant price volatility in the short-run. Over the course of many years, however, equities will enjoy the highest growth of virtually all asset classes.  As such, equities, and hence TJP might best be characterized as a Moderately Aggressive  Equity portfolios would be ideal for investors seeking growth, appreciation and dividend income.   There will be bumps along the way, but we know where this journey is going.
  • An Israel bond, on the other hand, will have virtually no default risk (i.e., the likelihood that the Israeli Government will default on its payments is low), although, like all bonds, there is interest rate risk (i.e., the price of an Israel bond will fall should overall yields on Israeli Sovereign securities rises). Overall, an Israel bond may best be characterized as a Conservative  Note: Conservative does not necessarily mean “better” than Aggressive.

 

Comparison of Security Characteristics

In addition to considering the performance of the underlying investments, one must also compare and contrast an investment in a TJP or Israel bond by taking into account the following:

  • Minimum Initial Investment
  • Ongoing Investments
  • Charitable Giving Capability
  • Safety
  • Regulatory Body
  • Insurances
  • S.-Based Investor Tax-Reporting Complexity
  • Foreign Asset-Reporting Requirements

 

Minimum Initial Investment:

  • TJP accounts can be opened for as little as $180.  This enables the individual to familiarize oneself with the strategy before committing additional capital.  This small amount also enables younger individuals with less available capital to learn investing concepts, while, of course, supporting the State of Israel at the same time.
  • Israel bonds, have varying sizes and flavors.  In general, most Israel bonds are intended to be purchased in relatively large sizes ($1,000 to $25,000).  However, there are some Israel bonds with much smaller minimums (the smallest being $36).

Ongoing Investments:

  • As mentioned previously, TJP accounts can be opened with just a small initial deposit.  Many TJP investors have expressed a desire to contribute additional capital after an initial deposit. TJP makes this process seamless.  After we set up your account initially, you may wire additional cash from your externally-linked bank account to your TJP account for investment.  Alternatively, you may send a check to us to deposit into your account.
  • One of the advantages of periodically investing into your TJP account is to execute a time-tested strategy known as Dollar-Cost-Averaging, by which you invest into Israeli equities over different time periods.  This ensures that you are not buying all at once at a peak time in the markets.
  • Israel bonds do not afford the investor the opportunity to add gradually to a position.  Rather, an investor wishing to increase a bond position must purchase an entirely-new bond either on the primary or secondary markets.

Charitable Giving Capability:

  • Many investors consider the ability to donate securities to charitable causes or institutions of the upmost importance.
  • Both TJP and Israel bonds may be used for charitable purposes.

Regulatory Body:

  • TJP is operated by RVW Wealth, LLC, which is registered with the United States Securities and Exchange Commission (SEC).
  • Israel bonds are also regulated the SEC.

Insurances:

  • TJP is insured by the Securities Investor Protection Corporation (SIPC), which is a non-governmental U.S.-based corporation whose mission is to expedite the recovery and return of missing customer cash and assets during the liquidation of a failed investment firm.
  • Israel bonds are insured by the Government of Israel.

 

U.S-Based Investor Tax Reporting Complexity:

  • Both TJP and Israel bonds have relatively simple tax reporting, compared to other types of investments, such as Israel Private Equity funds.
  • TJP and Israel bond investors will both receive an Internal Revenue Service Form 1099 annually.

 

Foreign Asset-Reporting Requirements:

  • U.S.-based investors can invest directly into both TJP and Israel bonds without having to move capital overseas.
  • As a result, there are no foreign asset-reporting requirements for either type of investment.

 

1 – Israel Bonds come in several different varieties, each having their own minimum subscription amounts. iAngels minimum commitment is USD 10,000 for any single opportunity. A separately-managed is available that has a portfolio minimum of USD 200,000.
2 – Depends on where the bond is held. Fairly safe if held at an established custodian (e.g., Schwab, T.D. Ameritrade). Less safe with a discount broker.
3 – The SIPC is the Securities Investor Protection Corporation which is a non-governmental U.S.-based corporation whose mission is to expedite the recovery and return of missing customer cash and assets during the liquidation of a failed investment firm (Source: Wikipedia).
4 – The Jersualem Portfolio holds over 100 companies which are diversified by size, sector, industry and exchange.
5 – For a single opportunity, no diversification exists. For a separately-managed account, ownership in about a dozen companies is possible.
6 – TJP will issue an investor a Form 1099-DIV for dividend income received during a tax year. Also, if an investor sells any or all of a position in TJP, TJP will also issue a Form 1099-B.
7 – A Schedule K-1 is a “statement of allocated income” whereby a Venture Capital fund (e.g. iAngels and OurCrowd) will report to a Limited Partner his or her share of the fund’s income. Schedule K-1 forms are typically issued well-past the standard April 15th tax filing deadline so a tax-filing extension is usually required.