Most Israeli Savings Lose Value in Banks Despite Stock Market Risks
The Bank of Israel recently reported that Israeli public financial assets reached 7.25 trillion shekels, equivalent to 340% of the country's GDP. However, a significant portion of this wealth is not invested but held in bank deposits and current accounts, yielding very low or zero returns and eroding in value due to inflation. Approximately 63% of the 3.2 trillion shekels held directly by households, businesses, and companies is kept in cash or deposits, amounting to about 2 trillion shekels. This conservative approach hides risk, as inflation in Israel has risen about 18% since early 2021, effectively reducing the purchasing power of money kept in low-interest accounts.
In contrast, professionally managed assets, including pension and provident funds totaling around 3.3 trillion shekels and mutual funds with 780 billion shekels, represent about 55% of financial assets and are mostly invested in higher-risk, long-term instruments. Pension funds, in particular, have a large exposure to foreign equities, with nearly 30% of institutional portfolios invested in overseas stocks. This indicates that Israelis are not inherently risk-averse but prefer to avoid visible short-term losses, favoring long-term, professionally managed investments.
The article highlights that holding excessive cash and deposits is a costly mistake, as it forfeits inflation protection and higher returns from equities and corporate bonds. This trend is not unique to Israel; European households also maintain a high share of assets in cash and deposits, which regulators see as a barrier to growth and adequate retirement savings. In contrast, U.S. households hold a much smaller proportion of their assets in cash.
Investors are advised to assess their portfolios comprehensively, balancing liquidity needs against long-term growth potential. They should consider real returns after inflation and taxes, diversify with inflation-protected bonds and equities, and avoid letting fear drive overly conservative investment choices. The article concludes that the greatest risk for many Israeli investors is not stock market volatility but the erosion of wealth from idle cash holdings.
