Prudent Investing Weathers the Storm

Evan Liberman Articles, Bonds 1 Comment

”When it rains, it pours.” In the past few weeks, many investors around the globe found themselves losing money quickly in major stock markets. The economic clouds that had been swelling and threatening became a torrential downpour; the financial storm came with a vengeance. Wise Money Israel clients were asking where they can best preserve their capital during this capital market deluge. Were all markets affected equally? Is there a safe place in the world to invest today? Let’s look at the numbers.

Wall Street Stocks

S&P 500 and flash crash (600x147)After six years of stock market growth on Wall Street (since 2009), we began to witness a dramatic slowdown of stock appreciation this year. Having gained a meager 3.5% January to July (S&P 500), stock markets around the world took a dramatic downturn in August, 2015. Toward the end of the last month, the American S&P 500 large-cap stock index had lost over 11% for the month. Since then, Wall Street has regained half of the losses, but still left investors with a 3%+ loss for the year.

Tel Aviv Stocks

TA-25 and flash crash (600x227)In contrast to the American stock market, Tel Aviv stocks had risen by over 17% from January to July. During the late August Flash Crash, the Israel stock market declined in sympathy with other stock markets around the world, but less (-8.8%). But the good news is that the Israeli stock market is still up 8.9% for 2015.

Tel Aviv Corporate Bonds: Safe Harbor

During this recent mini-crisis in capital markets around the world, Israeli corporate bonds reacted with much less volatility. The large-cap Israeli corporate bond index (Tel-Bond 20) declined only 1.7% (one-fifth of the volatility of stocks).TA-25 vs. Tel-Bond 20 (600x224) In fact, for the entire history of the Tel-Bond 20 index (since 2007), Israeli corporate bonds presented a similar overall yield as stocks, but with much less volatility. This presented an opportunity for steady, solid growth vs. the often rollercoaster experience stocks presented.TA-25 vs. Tel-Bond 20 (since 2007) (600x223)

Conclusion

Was the August Flash Crash just the beginning of a larger trend reversal, preceding the end of the 7-year bull market? Will the Fall of 2015 be remembered as the beginning of a major stock market correction? Time will tell. But many economists believe this Fall will be very volatile, irrespective of the eventual outcome. As the charts show us, Israeli corporate bonds provide a good place to invest funds, providing reasonable yields and much less volatility. We can sleep easier knowing our capital is being preserved while helping to build up the Jewish State. Also, 70% of these bonds’ interest payments are fully indexed to inflation, affording investors full protection against possible future inflationary pressures.

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