How to Start Investing with Just 500 Shekels Monthly

Young adults in Israel, typically around age 27, often have savings from their military service and early salaries that sit idly in checking accounts, losing value due to inflation. The article explains that the perceived complexity of investing, involving terms like 'portfolio,' 'broker,' and 'stock exposure,' deters many from starting. However, the actual process involves just three steps: opening an account, choosing two investment products, and setting up a recurring monthly deposit.

Investment strategy should be based on when the money will be needed. Funds required within one to two years, such as for a rental deposit or an emergency fund, should be kept in safe, liquid assets. Money not needed for a decade or more can be invested in the stock market, where short-term fluctuations are less significant. Mixing these funds is a common mistake, potentially forcing sales at a loss when market downturns occur.

For short-term savings, a money market fund is recommended. These funds invest in short-term government bonds and bank deposits, with returns closely tracking the Bank of Israel's interest rate. They offer liquidity, allowing access to funds within one business day without penalties, unlike fixed bank deposits. While money market funds are taxed at 25% on real gains (above inflation), this can sometimes result in a lower effective tax than the 15% flat tax on non-indexed bank deposits, especially after accounting for inflation.

For long-term investments, index-tracking funds are suggested. These funds, such as those tracking the TA-125 or S&P 500, offer diversified exposure to numerous companies with a single purchase. Exchange-traded funds (ETFs) trade throughout the day, while mutual funds are priced at the end of the trading day. The low management fees, typically between 0% and 0.3% annually for index funds, are a significant advantage over actively managed funds. Investors should also compare brokerage fees, which can vary significantly between banks and investment houses.

Automating investments through a standing order is crucial for success. This removes the emotional decision of when to invest, allowing for dollar-cost averaging where purchases are made at both high and low prices over time. Investing 500 shekels monthly with an average annual return of 7% could grow to approximately 35,800 shekels in five years, 86,500 shekels in ten years, and over 610,000 shekels in thirty years, before taxes and fees. The article advises separating funds into an emergency fund and long-term investments, comparing account fees, selecting a money market fund and a broad index fund, and setting up an automatic monthly deposit.