Capital market: why invest at all?
Money left in an Osh (עו״ש; checking account) may seem safe, but over time inflation erodes its purchasing power. On this page, we will understand why investing in the capital market can help preserve the value of money and participate in economic growth, alongside the risks that are important to know before you begin.
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Many people think investing in the capital market is an option for thrill-seekers, but in today's reality, not investing is a risk in itself. In this section, we will understand inflationA process of general price increases that reduces the purchasing power of money (the same amount of money buys fewer products)., why NIS 100 (100 ש"ח) today is not the same as NIS 100 in the past, and how the growth of the world's largest companies can help your money retain its value — and even grow.
The erosion of money's value
Money that remains uninvested loses purchasing power. The number in your bank account does not change, but the amount of goods you can buy with the same sum gradually decreases.
A shopping basket that cost NIS 500 a decade ago costs much more today. In other words, even if you have the same amount of money, it is worth less in practice because it buys fewer things.
Inflation and purchasing power
Inflation is a general and sustained increase in prices throughout the economy. It is measured using the Consumer Price Index.
- The numbers behind the erosion
- If inflation is 3% per year, your money loses half of its purchasing power in approximately 25 years.
- The test of time, 1995–2026
- The data show that NIS 100 in 1995 is worth only about NIS 49 today in purchasing-power terms. In other words, buying the same basket of goods today requires almost twice as much money.
Why does money in a checking account lose value?
An Osh provides a sense of securityA general term for a tradable financial asset (such as a share, bond, or unit in a fund) that represents a right to an asset or to profits. because the money is immediately accessible and liquid, but it almost never generates a returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested..
A checking account is suitable for day-to-day needs, not for building a financial future.
The capital market as a way to preserve money's value
The capital market allows us to invest in assets, such as stocks and bondsA type of "loan" that an investor provides to a government or company in exchange for repayment of the principal plus interest., that represent real economic activity. When companies grow and increase their profits, the value of our investment rises with them.
When the economy grows, many companies increase their revenue and profits. Over time, this growth is also reflected in higher company values and market capitalizations.
Investing in the capital market therefore allows investors to participate in economic growth rather than merely watching from the sidelines.
The growth of stock markets over time
Historically, global stock markets have shown a long-term growth trend despite short-term volatility.
For example, the S&P 500An index composed of 500 of the largest and leading companies traded on U.S. stock exchanges. index, which represents the 500 largest companies in the United States, generated an average return of approximately 10% per year over long periods, before inflation, when dividends were reinvested.
Returns are not constant, of course. Some years bring gains and others bring losses. But when we look at long periods, a clear growth trend can be seen.
The infographic shows how an investment of USD 1,000 in the S&P 500 developed over 30 years, with dividends reinvested.
The data show that despite years of declines and volatility, the investment grew substantially over the period. However, these are historical data and do not guarantee similar returns in the future.
Frequently asked questions
If there is a risk of losing money, isn't it better to leave it in a checking account at the bank?
At the bank, you are "certain to lose" purchasing power because of inflation. In the capital market, there is short-term risk, but also the potential for significant long-term gains that can offset rising prices.
What is the minimum amount needed to start investing?
Today, you can begin investing even with very small amounts — hundreds of shekels (שקלים) per month — through instruments such as a Kupat Gemel LeHashkaa (קופת גמל להשקעה; investment provident fund) or exchange-traded funds.
In summary
Money that is not invested gradually disappears in purchasing-power terms. Understanding the capital market as a tool for growth rather than as a gambling arena is the first step toward preserving the economic value of your hard work.
Investing does involve risk, however, so it is important to understand the principles of investing before you begin.