What you should know before you start investing

First: What is the capital market? (Capital Market)

The capital market channels money from consumption to investment. Individuals, companies, and even countries use it to grow their money—not just spend it. It lets your money work for you instead of sitting idle in a bank account.

Example: when you buy an iPhone from Apple, millions of people worldwide own Apple shares. As the company earns more, its share price tends to rise. The same idea applies to companies like Strauss or Tnuva, which trade on the Tel Aviv Stock Exchange—investors share in their profits.

Who supervises the capital market?

Israel’s capital market is tightly regulated to protect investors and maintain transparency. The Israel Securities Authority (ISA) supervises the stock exchange, mutual funds, and brokers. The Tel Aviv Stock Exchange is where actual buying and selling happen. The Capital Market, Insurance and Savings Authority oversees pensions and insurance companies. The Bank of Israel maintains monetary stability, and the Israel Tax Authority sets the rules for investment taxation.

Bottom line: when you open an investment account at a licensed investment house like IBI or Meitav, your money is managed within a lawful and supervised system—much like the banking system.

What can you buy in the capital market?

In the capital market there are multiple financial products (financial products), each with a different function. Among these tools:

• Stocks (stock – stocks): which is buying a small share of a company, meaning you become a partner in its ownership. For example, Apple stock in America or Bank Hapoalim stock or Strauss in Israel. The more the company profits, the higher the stock value.
• Bonds (bonds – bond): which is a loan you provide to a company or country in return for fixed interest. Like Israel government bonds (government bonds) that usually give around 3% annual interest.
• Index funds (ETF – ETF): which is a package containing a large number of stocks or bonds and is managed to track a specific index. Like the S&P500 fund that includes the largest 500 companies in the United States like Apple, Microsoft, and Tesla.
• Mutual funds (mutual fund): this fund pools money from a group of investors and is managed by a professional investment expert. Examples include Psagot or Altshuler Shaham funds in Israel.
• Investment savings fund (provident fund for investment): a long-term product that combines savings and investment, usually used for retirement or saving money for children.
• Savings policy (savings policy): an investment managed by major insurance companies like Harel or Clal, with the possibility of choosing the appropriate investment track for the investor.

How do investors profit from the capital market?

There are three main ways to profit:

First: Capital gain (capital gain – Capital Gain), which is when you buy a stock at a low price and sell it at a higher price. For example: if you buy a Tesla stock for one hundred dollars and sell it after a year for one hundred and fifty dollars, your profit is fifty dollars.

Second: Periodic income (dividend / interest), which includes two types:

• Dividend (dividend): which is the amount that the company distributes to shareholders when it achieves profits. For example, Leumi Bank distributed cash dividends to shareholders in 2024.
• Interest (interest): which is the fixed return you receive for the bond you bought.

Third: Cumulative profit (compound interest – Compound Interest): meaning that the profits themselves are reinvested to produce additional profits, and this is what is known as the effect of "interest on interest". If you invest a thousand shekels monthly with a 7% annual return, after twenty years you might have more than half a million shekels.

How to start investing step by step?

1. First: Define your goal. Do you want to save for your children's education, or to buy a house, or to secure retirement?
2. Second: Determine the time period for investment. If it's short from one to three years, choose fixed tools like bonds. But if it's long, more than ten years, it's preferable to focus on stocks and index funds.
3. Third: Know your risk tolerance. Can you accept a temporary decline in the market in exchange for a long-term profit opportunity?
4. Fourth: Start with simple and fixed amounts, as consistency is more important than quantity. Even 200 shekels monthly is sufficient as a start.
5. Fifth: Choose a licensed investment company (supervised investment house) like IBI or Meitav or Interactive Brokers.
6. Sixth: Monitor your investments regularly every three to six months, without stress from daily market changes.

Diversification and Balance

Diversification means distributing money across different tools and regions to reduce risks. The golden rule is: don't put all your eggs in one basket. You can diversify between sectors like technology, energy, banks, food, or between countries like Israel, the United States, Europe, and Asia, or between different tools like stocks, bonds, and cash. If Apple stock price falls, Chevron energy stock might rise, thus balancing your investment portfolio.

As for balance, it is readjusting the portfolio distribution after a period of time, when asset values change. For example, if your portfolio contained 70% stocks and 30% bonds, and after a year it became 80% stocks due to market rise, you sell a small part of stocks and buy bonds until the ratio returns to 70% versus 30%.

How do you distribute your portfolio by age?

It is usually preferred that the percentage of stocks in the portfolio be less as age advances, because risk becomes less acceptable as retirement approaches. Those under thirty can invest 80% in stocks, while those over sixty prefer to limit themselves to only 30%. The simple rule says: stock percentage = 100 minus your age.

Practical example from the market

If you invest a thousand shekels monthly in a global fund (global ETF) with a 7% annual return, after ten years you will have invested 120 thousand shekels, and its value becomes about 172 thousand. After twenty years, what you paid 240 thousand shekels can turn into about 520 thousand. After thirty years, the amount may exceed 1.2 million shekels. This is the effect of time and cumulative return, not luck.

Conclusion

The capital market (capital market) is a transparent legal system, subject to complete supervision. Anyone can start investing, as the matter is not about the amount but about understanding and discipline. Real profits need time and patience, not adventure or luck. Knowledge is the first real investment, and it is the foundation of financial freedom.

Legal notice

This content is for education and awareness only. It is not considered investment, financial, or tax advice, nor a recommendation to buy or sell any financial instrument. Every investor is advised to consult a licensed specialist before making any investment decision, in accordance with Israeli law and professional standards.