The families of the abductees in the Finance Committee/Knesset Channel
The last few years have been characterized by a very volatile economy and capital market, when since the beginning of the decade we have experienced at least two severe crises in the world's stock markets with declines of tens of percent, and also two impressive exits from those crises.
In addition, we started the decade with zero interest and inflation, and today both are at extremely high rates.
Even the year 2024, certainly in Israel, is loaded with question marks, which have significant effects on what will happen to our money, of course depending on where we invest it.
The capital market currently offers many types of savings and investment options, even for less sophisticated investors who are not interested in betting on specific stocks or bonds.
Each of the instruments has its own advantages and disadvantages, when they differ from each other mainly in terms of risk levels, liquidity levels, taxation rates and management fees charged on them.
We will try to see what are the characteristics of each such savings tool, and how it is expected to be affected by a volatile year full of question marks like the one that awaits us:
The year 2024, certainly in Israel, is full of question marks/image processing, Reuven Castro and Shutterstock
bank deposit
A device where the customer deposits money in the bank and undertakes not to withdraw the money for an agreed period of time, in exchange for the interest that the bank will pay.
The longer the money is locked up, the higher the interest rate.
The deposit can be unlinked, linked to the index or linked to the foreign exchange.
This is the least risky investment instrument, which yields the lowest return. It should be noted that in days like these, when the interest rate in the economy is extremely high compared to the last decade, bank deposits also offer interest rates that are not Reut - between 1.5% per year for monthly deposits and up to about 4% per year for annual deposits
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monetary fund
A mutual fund that is allowed to invest the funds it manages in mutual funds, large bank deposits and bonds with a high credit rating.
The fund can be bought and sold every day.
The fund is a very non-risky investment instrument that yields a low but higher return compared to a bank deposit, certainly more than money that sits idle in a bank account.
This instrument is also very non-risky and yields a low return: the return on a monetary fund is relatively close to the Bank of Israel interest rate, and there are no big differences between the various funds as far as the return is concerned.
For example, the monthly return on the funds in the last month ranged between 0.32% and 0.36% - that is, an annual return of about 3.84-4.32 - when the Bank of Israel's interest rate currently stands at 4.5%.
Mutual Funds
A fund that is established by some "fund manager" body and monitors a number of assets (shares, bonds, etc.) in accordance with the fund's policy.
Mutual funds are broadly divided into passive funds, which generally follow some famous index such as a basket fund (for example Tel Aviv 125), when these funds actually own the shares that make up the index and thus generate for the client the yield obtained in the index.
Another type of funds is the active or managed funds, in which the distribution of the fund's investments is made according to the decisions of the fund manager.
Mutual funds can be very safe with a low return (see monetary funds in the extreme case) or extremely risky, with a high return potential, if we chose to invest in an exotic sector such as emerging markets, or very volatile industries - which can rise greatly but also fall and lose a significant portion of our money.
savings policies
Another instrument offered by the insurance companies, which is similar in nature to the managed mutual funds but allows an advantage - was that we changed our investment tastes (for example, we wish to transfer our money from investing in bonds of developing companies to investing in technology stocks). Instead of selling a mutual fund and buying a new one (from which is a tax event that requires payment of tax), we can simply change our investment policy within the existing savings policy, and pay tax only when withdrawing the money.
In the last year, savings policies in the general route made an average return of 9.15% and savings policies in the share route reached an average annual return of 15.58%.
Savings.
Some devices include a significant tax benefit/ShutterStock
Provident fund for investment
Another managed instrument, similar to a trust fund, which allows for a tax benefit: an amount of up to NIS 71,000 per year, which is intended to last only until retirement age, will be exempt from capital gains tax.
An early withdrawal will require a 25% tax payment on the accumulated profits - similar to any other instrument.
Education fund
A fund that can only be deposited from the salary, in accordance with the ceilings set by law.
The great advantage of this investment instrument is that profits on the investment in the training fund represent a significant benefit - they are exempt from capital gains tax up to a certain ceiling.
The significant disadvantage - the investment limit from the salary only, as well as the fact that the funds saved in the continuing education fund are not liquid for six years.
Self-employed people who are also employees can deposit into two training funds at the same time and maximize the capital benefit to a higher amount.
Even in training funds, it is possible to choose safer or riskier routes for investment, from which the potential return expectancy will be derived accordingly.
Independent trading account
This is a tool that requires more investment and is probably not suitable for everyone, but offers diverse investment avenues and the payment of lower management fees.
For example - if we have a provident fund for investment and our money is in a path that follows some index (for example follows the S&P500), if we open an independent trading account we can invest the money in the exact same index and pay less management fees, which reduce our return, that is, the profit we will keep at the end of the road, mainly In the long term.
Such an account also allows us to invest in a specific single stock, funds that mimic Bitcoin, and more.
You can open a trading account both through Israeli investment houses and those abroad (pay attention to the different taxation).
Aside from the disadvantages, along with the required investment and follow-up, some trading houses have a required initial minimum that can reach 10,000-20,000 in the Israeli investment houses, and That the sale and purchase of stocks and funds is a tax event. And again as mentioned, it also requires understanding and management with a "finger on the pulse" and is not necessarily suitable for every person.
Kasuto
Most likely we are at a point in time where we can get a relatively high return/ratio
So which of the devices is the best for us?
Each has advantages and disadvantages as mentioned.
For the most part, it would be worthwhile to make the most of the opportunity to invest the maximum possible in a training fund and then in a provident fund for investment, this is because both of the above instruments embody significant tax benefits (in the provident fund, the benefit will be given as stated only to those who wait to withdraw the money until retirement as stated)
. For this, the investment will depend on our willingness to take risks with our money, in the face of a possible return.
It can be said that most likely we are at a point in time where we can receive a relatively high return for our investments, both the safer ones and the riskier ones, and it is quite possible that this window of opportunity To achieve handsome profits from an investment, will be reduced within a few months.The
writer is a managing partner in the consulting firm Moore Financial Consulting.
More on the same topic:
Savings
Capital Market
provident fund
security deposit
Education fund
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