Is the S&P 500 investment track just a trend, and do the really big returns really come from the general track? Are the declines in the wake of developments that brought Nvidia down good news for the capital market and humanity overall? Yes, claims Amir Kahanovich, chief economist at financial planning and consulting service Profit Financial Group, and previously the chief economist at The Phoenix Holdings, Excellence Nessuah Investment House, and Clal Finance.
Talking to Globes" news editor Bar Lavi, Kahanovich explains why he thinks portfolios should be managed, insists that risk diversification is necessary, and discusses the loophole that grants insurance product tax benefits to savings channels. Plus: the surprises coming up that could change everything.
This week, we were surprised by a Wall Street downturn led by Nvidia, and then a quick comeback. How do you see it?
"The longer you're in the market, the more you learn always to be prepared for surprises, and not count on anything. Jeff Bezos was once asked, Where do you see Amazon in 30 years? He said that it probably wouldn't exist. They said, 'What? How can you say such a thing?', and he replied that historically, eventually some event happens that erases companies as companies, and they don't survive. There are almost no companies that last a century. An event suddenly comes up -- I don't think this will kill Nvidia -- but it demonstrated how suddenly a surprise can come out of nowhere and shake up everything. These days, international entities are suddenly saying that AI is enabling China to overtake the US in resource efficiency. This could change the game as to what the capital market will look like in the next decade."
Kahanovich emphasizes that this is actually "an example of why it's not worth betting on a particular industry or a particular country."
As he sees it, the capital market is tricky, and the war in Israel is proof. "Despite the northern front, Iran, and the Houthis, the stock market here beats almost all other markets in the world and the shekel is getting stronger. Even during Covid -- there was a global recession, but the capital market went up. We learn to be modest in the way we see the future, , so we need a broad spread."
"Broad diversification is safer than a bank deposit "
The phrase "Don't put all your eggs in one basket" has become a cliché that guides every fledgling capital market investor. But in an era in which information comes in from every direction, the question isn’t whether to diversify investments, but how to do so intelligently and methodically.
According to Kahanovich, the basic principle is true for "geography, currencies, industries, asset classes, government bonds, corporate bonds, linked and unlinked bonds, short, long... There are so many things you can diversify into, including off-exchange assets that have their own advantages and disadvantages, such as infrastructure investments." He goes so far as to say that "The diversified package is safer than a bank deposit."
"Even within stocks, you can say, I'm in the S&P, but suddenly Germany is leading, so what about the DAX, which has risen 7% since the beginning of the year? The Dow Jones, the American industrial average, rose while Nasdaq fell. Even now, foreign entities are recommending that investors should start diverting money to China, because it turns out that they’re no fools."
So how do you do it? As a private investor, I can buy an apartment or Nvidia shares, but I don’t know how to invest so broadly.
"For something like this, you need an investment manager," admits Kahanovich. "Only he knows how to do it. If there was an ETF like that, with zero management fees - I would go for it. Unfortunately, there isn't, because someone has to do the work, make adjustments, utilize tools."
Kahanovich notes that while institutional entities (insurance companies and investment houses) have different tracks, "They open and close them according to trends."
He adds that the general track is actually the strongest: "In the end, there’s one track for each of these entities, called the general track where there you can find the diversification I was talking about. It's their showcase, and I'm telling you, as someone who worked at these entities, they invest all their management resources in making the best returns there. So that you can drive along the Ayalon highway and see billboards stating they’re number one. That’s where they present the diversified, general track. It's the safest place to be, and it gives amazing returns over the years. Last year, these tracks made 13% or more in most entities."
According to him, these tracks can also do much better than well-known stock indexes like the S&P 500. "It's an index that is very sector-biased, and very dollar-biased. Its high volatility doesn't suit most people. We've also seen long periods where it hasn’t gone up at all."
Kahanovich then makes a critical point. "Moreover, I say: you don't know what will happen in the future. If I tell you now that the S&P 500 will make zero percent in the next 30 years, you can't contradict me. It can happen, and we've seen it happen. Japan's S&P 500 the Nikkei 225, stopped in 1989 and has only been going down since then; it only recovered last year. It can happen to any index. The beauty of a managed track like the general one is that we don't have a single example of someone who lost more than two years in a row. Unlike the S&P 500, where you can sometimes reach very, very long periods of losses."
According to Kahanovich, the S&P 500 lacks is "internal defense mechanisms." "Look at what happened at the beginning of the week: the stock market fell, but the bond market rose. That's what creates defensive mechanisms. In a general, diversified track, I have many defenses that don't exist in the S&P 500 or any other specific index."
What about the differences between the general tracks of the various entities?
"First of all, you won't see very great differences between the big players. Still, everyone picks their own battles. One says, I'm going for very long-term bonds. The other says, I'm going for short- term bonds. The third overweights China and emerging markets. We at Profit Finance don't like it when entities sometimes pick fights. I prefer things to stay more or less average. I don't want extremes, not this way or that way.
"If entities go to extremes, we can decide to reduce our clients' exposure to them. We provide value to our clients by knowing how to place them with the managers whom we expect will do better at that moment."
How significant is the issue of management fees?
"The management fees at most entities are quite similar, there are no dramatic difference between them. This market is very competitive. In any case, the only way to avoid management fees completely is to trade independently, but a financial entity gives you better quality management, free foreign exchange conversions, you don't have to pay transaction fees on buying and selling, and there are also tax benefits. There’s not much tax when switching between different risk tracks, for example." Kahanovich also claims that "people who try to manage portfolios independently usually do it for up to three years, then transfer them to professional management, after they realize how much damage they’ve done to themselves."
"Hiding cash in a coffee can doesn’t build wealth "
What tips do you have for savers?
"First and foremost, check with a professional what level of risk is right for you. Sometimes people get into trouble when they don't understand the amount of risk they’re taking. You need to make sure that your portfolio is sufficiently diversified, and this is done with a professional. It’s also important to understand the time frames when you’ll need the money."
He does, however, qualify that, "You shouldn't pay someone who claims they can beat the S&P 500," but rather, "You should pay a manager to build an effective portfolio that will reduce volatility by diversifying between different types of investments. If my portfolio is diversified between different types of investments, my capital grows safely and steadily."
Kahanovich emphasizes that even if someone makes "only" 7% a year, "within 10 years he’s doubled his money. A person who saved a million shekels by the age of 40, will have NIS 2 million at the age of 50, and by retirement age 70, it will be NIS 8 million. If you’ve saved a million and don’t have NIS 8 million by retirement, it means you made a mistake. These investments and being careful -- that's what will build your capital."
Regarding money market funds, Kahanovich says, "It's just a little more than a deposit. They mainly have tax benefits, and a slightly higher return. But it's a level of returns that won't build your capital. You don't understand how dramatic this is, in terms of damage to capital building. Most of the money you or our audience will have at retirement age doesn’t come from work. No matter how much you save on morning coffee at the local cafe and say, OK , I saved a few more shekels… most of your savings won't come from that. Most of your savings will come from putting the money in a place where it will grow every year. If you make, let's say, 7% on it, which is more or less what people who spread their money across many tracks and not in one niche achieve, you will guarantee yourself much more money than a person who earned twice as much as you, but put his money in a deposit account."
Are there any financial products you focus on in particular? Advanced training funds? Investment provident funds?
"Each has different advantages, whether in taxation or different costs. A financial planner should maximize them for you. He or she will take into account when you need the money and what tracks to put you on. And of course, it is best to set aside for retirement tracks, because, first and foremost, they have a lot of benefits. We really like the savings policy product, which many people don't know about, because the bank won't tell you about it."
What is a savings policy? Kahanovich explains that, "Insurance companies have the option of offering you pension insurance, but without the insurance. It’s ostensibly an insurance product, but the proportion of insurance is zero. It’s an insurance product with no insurance, but it still has all the tax benefits. I wouldn’t call this a 'loophole' or anything like that, but it is a platform that allows you to enjoy many benefits and an amazing return. They manage money better there, for the most part."
When entities are compared, he adds, the returns on these policies are higher because "they usually manage it within the same basket as your pension fund and your training fund - and where’s the advantage in that? Mainly during a downturn. Then, the fund manager is less stressed, because even when there’s pressure to sell, the clients continue to save for retirement. So, you don't even have to sell, just stop putting new money into a particular investment. He doesn't have to sell at any price, he's much more liquid."
Are investors more mature today?
" We see a great deal of understanding and much progress. It's a bit worrying that this understanding actually drives people towards trends and pundits. And yet, when I see a person who gets into the S&P 500 in the midst of a crisis, I know that he knows how to deal with a high level of risk. But whoever goes in after the rises carries a warning sign. On social media, people get too carried away by trends, unfortunately. As soon as there’s a trend, the institutions will do whatever you want. If tomorrow, for example -- an extreme example -- the Zimbabwe stock exchange stars, they’ll open a Zimbabwe track. What do they care? They’ll sell what the public wants." Kahanovich also says that "investment managers don't put their money in the S&P 500, but in general tracks."
"Yes, Nvidia went down, but other companies went up"
In conclusion, regarding the current market turmoil, Kahanovich suggests taking a broader perspective: "It's true that Nvidia's stock fell on a certain day because perhaps fewer people need its chips. But this is a huge leap for humanity. It means that my phone can suddenly do things that I thought I needed more processors to do.
"In my opinion, the market should rise given the amazing technological development we're hearing about. Excluding the large companies that were hurt by this news, who are actually deeply invested, in the hundreds of billions, we see that other companies have gone up. Nvidia is simply so big that it pulled the index down at the beginning of the week - and up the next day. Ultimately, this is a positive event and you never know where it will lead us in terms of growth."
This article was originally published in "Globes" in Hebrew on January 30, 2025.
The "Globes" Financial Growth Track series took place in collaboration with Profit.
Published by Globes, Israel business news - en.globes.co.il - on June 22, 2025.
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