Compounding – the gift that keeps on giving

The concept of compounding is simple but incredibly powerful. It means earning interest on your interest. When you invest, your money begins to generate returns, and those returns begin generating more returns. Over time, this creates a snowball effect – your money makes more money, which makes more money again.

For example, if you invest ₪10,000 at an annual return of 6%, after one year you’ll have ₪10,600. In year two, you don’t just earn on your original ₪10,000 – you earn 6% on ₪10,600. By year 10, without adding another shekel, your investment would grow to almost ₪18,000. And the earlier you start, the longer you give compounding to have its great effect.

Our approach – simple, consistent, and prudent

At Labinsky Financial, we believe long-term wealth comes from starting simple, staying consistent, and avoiding unnecessary risks. Here’s how to get started with confidence.

How to get started – 6 practical steps

Step 1: Maximize what you already have

Israel has built-in savings vehicles.

• Pension funds: Employers and employees together contribute about 20.5% of the salary to the pension. Self-employed workers must also contribute. When managed wisely, your pension fund can become a strong foundation for retirement if invested along the right track, with consistent contributions, while avoiding high fees and early withdrawals of pitzuim.

• Keren Hishtalmut: A six-year savings plan with tax-free withdrawals and a monthly deposit limit (NIS 1,571 in 2025). It is considered one of the most valuable benefit options. Both employees and the self-employed can open this fund.

• Chisachon LeKol Yeled: From birth, each child in Israel receives a savings account funded monthly by Bituach Leumi. Parents can choose to match contributions.
  Review all your accounts carefully. Make sure that you aren’t paying unnecessary high fees, and that your funds are invested in the right track for your goals and risk tolerance.

Step 2: Define your goals

Begin with your “why.” Are you saving towards a home, children’s education, long-term retirement security? Your goals – and risk tolerance – should shape your approach. When you define your goals, you give yourself a direction and will be more motivated to reach them.

Step 3: Choose the appropriate vehicle

Most investments are in two main areas:

• Stocks: Higher risk but higher long-term growth potential.

• Bonds: More stable and conservative, but with lower returns.
  The rule of thumb: the longer your time horizon, the more aggressive your portfolio can be. Young investors with decades ahead of them can usually afford a higher percentage of stocks, while those saving for a house in five years should invest more conservatively.
  Expect volatility if you hold stocks – markets go up and down. The key is not to react emotionally during downturns. Patience pays.

Step 4: Choose a platform

Decide whether you want to manage your investments yourself or pay a fund or manager to do it for you.

• Self-directed investing:

  • Banks: The simplest option but usually the most expensive, with high trading and custodial fees.

  • Israeli investment houses (Meitav, Excellence, IBI): Lower costs, local service, automatic tax handling, and modest minimum deposits.

  • International brokers (Interactive Brokers): Generally offer the lowest costs and broadest product selection, but no shekel support and you must file your own Israeli tax returns.

• Managed investing:

  • Kupat Gemel Lehashkah: A flexible private investment plan with an annual deposit limit (NIS 81,711 in 2025). Contributions can be monthly, lump sum, or both. Fees are usually 0.6%-0.9%. Note: U.S. citizens should be cautious due to complex PFIC tax rules.

Step 5: Build a simple beginner portfolio

Once your account is set up, build a portfolio that aligns with your time horizon and risk tolerance. For most beginners, the best approach is also the simplest:

• Use low-cost, diversified Exchange Traded Funds (ETFs) that track broad markets.

• Automate monthly contributions so investing becomes a habit.

• Review your portfolio once or twice a year, not daily.
  If you’re a U.S. citizen, avoid non-U.S. mutual funds and ETFs (classified as PFICs). Stick to U.S.-domiciled ETFs for tax efficiency.
  Do not react to short-term market moves. Remain patient and consistent, allowing time and compounding to work in your favor.

Step 6: Avoid the pitfalls

• DON’T chase trends, buying into whatever has recently been in the news. Often that results in buying high and selling low.

• DON’T time the market, moving in and out based on predictions of short-term movements. Even professional investors rarely succeed at this strategy and missing just a few of the best performing days can dramatically reduce long-term gains.

• DON’T panic when the market drops. Selling in a downturn locks in losses and often prevents investors from participating in the recovery that typically follows.

• DO stick with a disciplined, long-term strategy. Diversify, contribute regularly (even small amounts count), and rebalance occasionally. This approach may not feel as exciting as chasing the “hot stock of the month,” but it is far more likely to build sustainable wealth over time.