Chasing the Fionist Dream

Here’s a fun thought exercise to start your day:

What do the words “therapist” and “investment” have in common?

Have you figured it out?

Take your time. We’ll wait.

………..

The answer is that neither of these words is legally regulated, at least not in Israel or the US. While it is illegal for someone to brand themselves as a psychologist or social worker without the required degrees and license, anyone can advertise themselves as a “therapist”. So too, anyone can market something as an “investment”.

While investing in yourself (your body, your health, your education, your happiness, etc.) is a real and commendable thing that we support, the word “invest” has become a total free-for-all and doesn’t always mean what you think it means. Have you ever seen social media posts urging you to “invest” in some new company, loan someone money with the promise of interest, or God forbid, join an MLM or trade binary options?

Not all investments are created equal.

We – and most FIRE people – are all about boring “vanilla” investments. We love diversifying and spreading out risk. Instead of buying stock in one company, we’ll buy stock in hundreds or thousands or millions of companies by means of an index fund or ETF. While one company can be incredibly successful one year and then go bankrupt the next, an entire sector – or the stock market as a whole – has a much better chance of surviving – and recovering! – from a recession or other shock to the market. The journey to financial independence is slow and steady. We invest the same amount (or more if we can) every month, no attempting to time the markets and aside from a few small tweaks here and there, no trading.

So what do we invest in?

(Disclaimer – We are not financial advisors; Any information we share about investment is for informational and educational purposes only.)

Our pension plans. Thankfully, pension plans are mandatory for anyone working for money in Israel, so you very likely have one too. With your and your employer’s deposits combined, almost 20% of your gross salary gets invested every month. That’s huge! We chose stock-based tracks (מסלול מנייתי) instead of the default track as traditional retirement age is still decades away for us and chose companies with the lowest management fees. Our pension plans currently comprise 43% of our total portfolio. As we continue to invest more through other means, our pensions will make up a smaller proportion of our total portfolio.

Our kranot hishtalmut. We consider ourselves fortunate to have this extra savings plan offered by our employers. Thanks to this, another 10% of our gross salary gets invested too. Our kranot hishtalmut combined currently comprise 12% of our total portfolio. Like our pension plans, all of our kranot hishtalmut are in stock-based tracks.

ETFs. Thanks to American tax laws and the PFIC curse, all of our boring vanilla ETFs are American domiciled and track broad sectors including the S&P 500, commercial real estate, and the total stock market. This component currently constitutes 28% of our portfolio and increases proportionally each month. In the future, this will become the majority of our portfolio.

P2P loans. A couple years ago, we decided to put some money into one of Israel’s leading peer-to-peer lending platforms that we had seen recommended on certain forums. So far we have no complaints and it has continued to grow steadily throughout the shaky markets. That said, we have read plenty of mixed reviews on this company and P2P lending in general, so we’re not 100% sure of our opinion on this one. It is currently 13% of our portfolio and if we keep it, it will continue to remain a small proportion of our total investments.

Pakam. Similar to a CD, these are short term savings plans offered by banks. We have a whole bunch of them started at different times, meaning that at any given time, we can access some of the money. Ours give us 4% annual interest. This is where we keep our emergency fund and slush funds. In total, these accounts account for 4% of our portfolio.

In total, all of our investments together bring us to 23% of our financial independence goal. 🥳

In case you’re interested in learning more about these types of investments and others, our friends at Blue and White Finance have some wonderful free guides for you to check out. You can also see all of the Israeli banks and investment houses and their fees for different types of investments here. You may notice that the banks charge the highest fees. Check out our handy summary chart below.

What is your favorite kind of investment?

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