Saving for Your Angel

The apple of your eye, and we don't mean the dog, is three months old. You want to save money for him. To buy an apartment, see the world, whatever. You want to set aside say NIS 500 a month for 20 years. What are your choices?

First of all, kudos. Saving is good.

Now, usually we recommend stocks for long-term savings, and 20 years is long-term. Many studies  have shown that investment in stocks generates the highest returns over time, though the ride can be rocky.

For example, the Tel Aviv Stock Exchange generated nominal yields of 14 percent a year over the last decade; minus average inflation of 3 percent, that is returns of 10 percent to 11 percent a year in real terms.

Example: If 19 years ago, in December 1987, you'd invested NIS 100,000 in the Analyst Stocks Menorah Gaon, you would today have NIS 3.8 million. (But nobody can promise that future returns will be as high as past returns.)

We recommend you sign a standing order. Deposit money each month in a mutual fund, one or more, but one in whose management you have faith. Or, you could invest some of the money in an index-linked note that tracks a leading Israeli index, such as the TA-25 index or the TA-100.

You could split your  investment between a mutual fund investing in Israel and one investing abroad.

In the case of mutual funds, the investment manager is what counts. Spare no effort to find a good one.

If you are conservative, you can put some of the money in a mutual fund that invests in bonds. You will probably gain lower returns, but the fund's results will be a lot less volatile.

Walking on eggs

If you opt for stocks, do it carefully. Keep track of the funds you chose, and of the capital market. Sometimes mutual funds change ownership or management, and investment policy.

Mainly, the situation on the market can change, requiring adjustment of your investment policy. If a bubble develops, you may want to get out.

If you do all the above and act carefully, you have a good chance of your angel reaching adulthood with a nice nest egg in hand.

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