Before diving in: how do you prepare to invest wisely?
Before choosing an investment, make sure the plan suits your financial situation, goals and risk level. This page explains how insurance, the investment horizon and your ability to cope with declines affect portfolio construction, and introduces tools such as the age rule and Glide Path model for adapting risk over time.
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Successful investing does not begin with choosing a hot stock, but one step earlier: understanding your personal situation. Proper preparation is the difference between calm, long-term growth and hasty decisions made under pressure.
Step 0: insurance that keeps you stable
Before investing, make sure you have a stable financial foundation. The capital market is intended for long-term growth, but unexpected events such as a medical problem or loss of work capacity may force you to withdraw money at the worst possible moment in the market.
Investing is a marathon, not a sprint
The most important factor in financial success is not necessarily deep knowledge, but your behavior.
- The capital market is inherently volatile. There will be rises, but there will also be declines.
- The key is not to panic, to remain calm during red periods and to stick with the original plan.
Matching your risk tolerance
Not every investor is suited to the same level of risk.
An investment that does not suit your personality will cause you to sleep badly at night and sell at a loss in a moment of fear. The goal is not to find the investment that is "most profitable on paper," but one you can continue holding over time.
How do you assess your risk tolerance?
Before investing, understand the level of risk that suits you personally.
When you approach an investment adviser at a bank or investment house, one of the first steps is completing a questionnaire designed to assess your risk level. It aims to understand how well you can cope with volatility, your investment horizon and your financial situation.
- Mental resilience: How would you feel if your investment portfolio suddenly fell by 10% or 20%?
- Stability: Do you have steady sources of income?
- LiquidityThe speed and ease with which money can be withdrawn from an investment and converted into cash in a bank account without significant penalties.: Do you have money available for emergencies?
- Time horizon: Is your investment horizon short, medium or long?
The answers help build a personal risk profile and adapt the investment portfolio accordingly.
Practical tools for managing portfolio risk
1. The "100 minus your age" rule
This is a simple rule of thumb for setting the percentage of stocks, the volatile or risky component, in your portfolio: 100 minus your current age equals the percentage allocated to stocks.
Stock allocation under the 100 minus age rule
| Investor age | Recommended stock allocation under the rule | General risk level |
|---|---|---|
| Age 30 | 70% stocks | High, suitable for younger investors |
| Age 60 | 40% stocks | Moderate, suitable as retirement approaches |
2. The Glide Path model
The main idea is simple. At the beginning, when the investment horizon is long and there is time to recover from market declines, you can hold greater exposure to riskier assets such as stocks. As you approach the date when you expect to need the money, you gradually reduce risk and increase the conservative component of the portfolio, such as bondsA type of "loan" that an investor provides to a government or company in exchange for repayment of the principal plus interest. or cash.
Adapting the portfolio as the goal approaches
| How much time remains until the goal? | What happens inside the portfolio? | What is the financial objective? |
|---|---|---|
| Very far away, 15+ years | Most of the portfolio is in stocks and risk assets | Strong growth, with time to recover from market declines |
| Approaching, 5–10 years | Gradual balancing by moving some money to bonds | Slowing down and beginning to stabilize the path |
| Very close, a few years | Most of the portfolio is in conservative assets and cash | Protecting the money and preventing a loss just before withdrawal |
The advantage of this approach is that it lets you benefit from the capital market's growth potential in the early years while reducing risk as you approach the time when the money will be used. This lowers exposure to volatility precisely when market declines could have a greater effect on your ability to realize the investment. The approach is especially common in retirement savingsA general term for long-term savings products (pension fund, managers’ insurance, or provident fund) intended for retirement. plans, which have a clear goal and defined withdrawal date, but it can also suit other goals such as funding studies, buying a home or any future financial objective.
The bottom line
Wise investing rests on four pillars
- Insurance that protects against life's surprises.
- Patience that prevents decisions under pressure.
- A personal fit with your risk tolerance.
- Smart tools, such as the age rule or a Glide Path, that organize the portfolio over time.
When you build an investment plan to your own measurements, rather than only according to market trends, your chance of succeeding and winning the marathon increases substantially.
Frequently asked questions
What is the difference between the "100 minus your age" rule and a Glide Path?
- The 100 minus your age rule is a point-in-time formula, a rule of thumb that helps you understand where your portfolio's stock allocation might be today.
- A Glide Path is a holistic, automatic plan: a roadmap showing how the portfolio changes over time as the goal approaches, for example by reducing risk gradually by 2% each year.
What if a risk questionnaire says I am "conservative," but I want a high return?
This is a common dilemma. High returns always come with risk and volatility. If the questionnaire defines you as conservative, you may panic and sell at a loss when the market falls. In that case, it is better to start small, experience the market and raise the risk gradually only when you feel comfortable with the fluctuations.
Do these rules also suit short-term savings, such as a wedding in two years?
Not at all. Models such as a Glide Path or age-based stock exposure are intended for medium and long terms of five years or more. If you need the money in the next two years, the capital market is too risky for it, and fully conservative options such as bank deposits or money market funds may be preferable.
How can I know my risk tolerance without first losing money?
Risk tolerance has two parts: your financial capacity, including how much available money you have and whether your income is stable, and your mental resilience. Ask yourself honestly: "If I deposit ₪10,000 and tomorrow morning the app shows only ₪8,000, will I lose sleep or understand that this is part of long-term investing?" Your answer helps define your financial personality.
In summary
Successful investing does not begin on the stock exchange, but in your own pocket. Before chasing returns, make sure you have a stable insurance foundation so you will not withdraw money under pressure, and define your risk profile. Use tools such as the age rule or Glide Path model to adapt the portfolio to your stage of life, because investing is a marathon, and the winner is the person who can persist over time.