Why money sitting in a checking account is money that shrinks
Inflation of 3% a year sounds small. But ₪100,000 sitting without earning a return will be worth, in purchasing power — ten years from now — about ₪74,000. The money doesn't disappear from the account. It erodes.
The simple conclusion that follows: not investing is also an investment decision — and usually not a good one.
What happened in the market in 2022 — and why
In 2022, the Bank of Israel (and most central banks around the world) raised interest rates sharply to fight inflation, which had reached record highs. The result: stock prices fell — both on the Tel Aviv exchange and on Wall Street.
The reason: when interest rates rise, government bonds (considered safe) offer a higher return. That makes investing in equities — which carry higher risk — relatively "less attractive." Money flows from risk to safety. Stock prices fall.
💡 The connection: high interest rates → bonds more attractive → equities less attractive → stock prices fall. This connection isn't always immediate, but it's one of the most powerful forces in the capital markets.
Inflation — good or bad for investors?
It depends. Companies that can raise prices (such as consumer, energy and real estate companies) benefit from inflation. Companies with fixed costs and rigid selling prices — suffer.
Equities in general are one of the best protections against inflation over time — because companies generate real profits, not nominal ones. But in the short term, high inflation produces volatility.
What an Israeli investor should do
- Don't panic — periods of high interest rates are temporary. The market recovered after every one of them.
- Don't hold everything in deposits — 4% interest on a deposit sounds good, but the capital markets have delivered 10% on average over many decades.
- Diversify — equities, bonds, real estate, index funds. Spreading your investments reduces the hit from any single local economy.
- Keep contributing — declines are opportunities to buy cheaply. Those who contributed steadily in 2022 enjoyed the rise of 2023–2024.
The simple conclusion
Inflation and interest rates are part of investing life — not anomalies. The investor who understands these connections isn't surprised when the market reacts — they're prepared in advance.
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