Q & A: Rotem Starkman's Investment Tips

Readers ask, our capital markets editor answers

Q: I have NIS 10,000 and don't mind some risk, but not too much. I want to put the money somewhere for 24 months. Where should I put it to get the greatest returns?

A: Two years on the stock market can be very rewarding, but it can also be very disappointing.

If you are sure you're taking the money out in two years, you're better off in short-term bonds, fixed-interest shekel or linked to the consumer price index, or a mutual fund that invests in short-term bonds.

Assume you'll get returns of 5 percent to 6 percent a year, unlinked, or 3.5 percent to 4 percent linked.

Q: Should I buy gold?

A: Not unless you own a jewelry store. Metals in general and gold in particular are a very small niche in the investment rainbow of possibilities. We see no compelling reason for a regular investor to expose himself to the risks of gold.

The figures show that in the long run, gold - and other commodities, even oil - have not outperformed other financial assets. Nor has gold been immune to volatility: the risk inherent is not small.

If you're locked on gold anyway, then just take into account that it's price has risen sharply in the last year, and investors earned a mint. From the start of 200 to mid-May, gold shot up from $438 per ounce to $714, leading not a few commentators to call commodity prices a bubble. In the last month, commodities sank into a mini-crash and gold plunged 20 percent to $576.

Q: What is the best way to build an NIS 50,000 portfolio?

A: First you have to ask yourself some questions.

(1) How much can you afford to lose? Investment in stocks can make you money, or lose it. Are you prepared to lose NIS 10,000? NIS 15,000? If that's a yes, you may want stocks.

(2) How much risk are you prepared to take on?

High risk means a portfolio stuffed with shares, especially shares of little companies that can generate high returns. But the price is risk. A diversified portfolio with shares, bonds and foreign currency might be best for medium terms of three to five years or more.

(3) What else do you own (what's your real asset portfolio)?

Investing NIS 50,000 in the stock market is nice, but first list your assets. Are you saving for your future in some form? Do you own a flat? All this may affect your decisions.

(4) For what term do you mean to invest - or, might you need the money soon?

If you're investing for the long term, we generally recommend stocks. If you're looking at a year or two, we suggest a conservative portfolio.

(5) What are your sources of information? How much time do you have to devote to your portfolio?

Or: Do you want to handle your portfolio by yourself, if you want to investigate certain stocks and keep track of them? or hand the whole thing over to a portfolio manager (for instance, invest via a mutual fund) until you have more money, and more time to devote to handling it?

Don't make any decisions before answering all the above.

Q: What is a mutual fund?

A mutual fund is a place through which a group of people with similar investment goals can combine forces, instead of acting separately.

Essentially, the group "hires" an investment manager, who invests their combined resources in shares, bonds, or other securities.

The investment goals are predetermined and stated in its prospectus.

Mutual funds in Israel operate subject to the Common Investments in Trust law, which states who may establish a mutual fund, what are the terms for its establishment, and what are the duties of its management.

Israel's mutual funds are supervised by the Israel Securities Authority.

Each fund's prospectus also lays out its investment policy, and other details.

When investing in a mutual fund, you are buying participation units. The price of the participation units depends on the general investment scheme of the fund and its cash position. When the value of the securities it holds goes up, so does the value of the participation units.