Chasing the Fionist Dream

People talk about all kinds of investments. “Invest in this fund! No, that fund is better!”

There are endless options out there, but in this post, we’ll focus on the most common vehicles available here in Israel today. As like we like to remind you on this blog, if you’re a salaried employee, you are already an investor, whether you realize it or not. This is because you and your employer deposit money into your pension straight from your gross salary (bruto) every single month. And, if you have a keren hishtalmut, the amount you invest every month is even higher. On top of that, we invest a portion of our net income into our brokerage account every month. Combined, that can bring our household savings rate close to 50% some months!

Make sure to read to the end, because in this post, we also talk about where to keep your investments and how to open them. We also explain which options are better or worse for American citizens.

Before we dive into different types of investments, let’s talk about what risk means in investing. Think of it like a rollercoaster. Your portfolio value can jump 10% in a short window, but it can drop just as quickly. Risk tolerance comes down to your timeline and your stomach. It’s about choosing assets that won’t cause you to lose a night’s sleep when the market dips.

Disclaimer – Everything written here is for informational and educational purposes only and should not be considered investment advice.

US Tax Note: Keep in mind that some Israeli investment options trigger a major IRS headache, as they are recognized by the IRS as a PFIC (Passive Foreign Investment Company). In short, this means punitive tax rates and extremely complicated reporting requirements. We will mark any option that poses a potential PFIC problem for US citizens with ‘PFIC 🚩’.

Low risk: Little chance of losing your money. Slow growth.

Best for: Short-term savings goals or your emergency fund.
Less effective for: Wealth building.

These include:

1. Pakam (פיקדון בנקאי). A basic short-term bank deposit account. You lock away your funds for a set period (ranging anywhere from daily or monthly up to a year) to earn a predictable interest rate. Simple, reliable, safe, and accessible.
   
   
2. Keren Kaspit (PFIC 🚩). A mutual fund that pools together short-term, low-risk assets like large bank deposits and government treasury bills (Makam) to offer better yields than basic individual bank accounts. They offer high liquidity with daily withdrawals and favorable Israeli real gain tax rules.
   
   
3. Bonds. Money lent to a government or a corporation in exchange for regular interest payments over time. Government bonds from stable countries carry minimal risk, while corporate bond risk depends on the financial health of the particular company.
   
   

Medium risk: Fluctuates up and down, with an upward trajectory over time.

Best for: Medium- to long-term goals. Building wealth over time.
Less effective for: Short-term savings.

1. Polisat Hisachon / Insurance Company Savings Plan (פוליסת חיסכון) (PFIC 🚩). A managed investment portfolio offered directly by Israeli insurance companies. You can select your preferred risk track (ranging from conservative to stock-heavy) and switch between tracks at any time without charging you tax on the spot. Taxes are deferred until you actually withdraw the money.
   
   
2. Kupat Gemel LeHashka’ah (קופת גמל להשקעה) (PFIC 🚩). A flexible investment account offered by Israeli investment houses and insurance companies. Like a Polisat Hisachon, you can choose from different investment tracks and switch between them without triggering an immediate tax event. Taxes are deferred until withdrawal, and if you keep the funds until retirement age and withdraw them as a pension, you may qualify for significant tax benefits under Israeli law.
   
   
3. Mutual Funds (Kranot Ne’emanut / קרנות נאמנות) (PFIC 🚩if based outside of the USA). Pooled investment vehicles managed by professionals. They can target specific sectors (like technology or energy), track broad market indexes like the S&P 500, or hold a mix of stocks and bonds (such as an 80/20 split).
   
   
4. ETFs and Index Funds (Karanot Sal / Kranot Madad – קרנות סל / קרנות מחקות) (PFIC 🚩 if based outside the USA). Diversified investment funds that closely track a specific market index, asset class, or industry sector. Their risk level generally mirrors the performance and volatility of the underlying assets they track. Both offer a simple, low-cost way to gain broad market exposure and are popular choices for long-term investors.
   
   US Tax Note: Any pooled fund or investment track structured outside the US (including Israeli mutual funds, Polisot Hisachon, and Israeli-domiciled ETFs and index funds) is considered a PFIC 🚩 by the IRS. Dual citizens (including us) looking for broad index exposure often stick to US-domiciled ETFs.
   
   

High risk: Large swings in value, with the potential for both high returns and significant losses.

Best for: Investors comfortable with volatility, sometimes as part of a larger diversified portfolio.
Less effective for: Short-term goals or money you cannot afford to lose.

1. Direct Stocks. Investing directly in individual companies like Apple, Coca-Cola, or even your local cellular provider. Buying single stocks is risky because one bad quarterly report or bad news cycle can drop a share’s value 20–30% in a single day. Thoroughly researching and keeping up with individual companies takes real time and effort.
   
   
2. High Risk / Junk Bonds. Similar to standard bonds, except here you are lending money to companies or countries that are in financial trouble. Because their default risk is high, they offer higher interest rates to attract investors.
   
   
3. Crypto. Assets like Bitcoin. You can buy coins directly on an exchange, or through spot ETFs that track crypto index prices. The price swings here are extreme, so never invest money you can’t afford to lose completely.
   
   
4. P2P (Peer-to-Peer) Lending. Platforms that let you act as the bank by lending money directly to individuals or small businesses. While it can yield solid returns in strong economic times, default rates jump when borrowers struggle during downturns. Remember: P2P platforms are not banks, meaning your funds are not government-insured or protected if a borrower defaults.

How to actually start investing:

When deciding where to open an account, you generally have two solid routes – and another that is less ideal.

1. Option 1: Local Israeli Investment Houses (e.g., IBI, Meitav Dash, Excellence). These are great if you want standard tax-advantaged accounts like a Kupat Gemel Le’Hisachon. They also enable you to invest directly in the Israeli, American, or other stock markets. They handle Israeli tax withholding automatically so you don’t have to report to the Mas Hachnasa (Tax Authority) yourself, though they typically require a ₪10,000–₪15,000 minimum deposit to get started. Not all brokers in Israel accept dual citizens. We personally invest through IBI. (Feel free to use this link to open an account and get both of us a small kickback.)
   
   
2. Option 2: International Platforms (e.g., Interactive Brokers). If you hold US citizenship, foreign brokerage platforms offer cheaper trading fees and direct access to US domiciled ETFs allowing you to steer completely clear of the dreaded PFIC tax nightmare. On the flip side, you’ll need to handle your annual tax reporting and filing yourself.
   
   
3. Option 3: Local Israeli Banks. Israeli banks make it easy to invest, but that convenience often comes with higher transaction fees and quarterly percentage-based custody charges (Dmei Mishmeret). While these costs may seem small at first, they grow and add up over time and eat into your long-term returns. Before opening an investment account at your bank, it’s worth comparing the fees and features offered by dedicated investment platforms.

Once your account is open, no daily maintenance is required. In fact, the entire process can be automated. You can set up automatic transfers and recurring investments into your chosen low-cost index funds and then simply “set it and forget it.” No checking stock prices, no watching financial news, and no stressing over whether today is the right day to buy or sell. Your investments continue working in the background while you focus on living your life, with only the occasional check-in to make sure everything is running smoothly.

Conclusion

If you hold US citizenship, remember that owning Israeli-domiciled mutual funds, ETFs, or Polisot Hisachon can trigger severe PFIC tax penalties and complicated IRS filing requirements. Before investing, consult a CPA who understands both US and Israeli tax rules.

The good news is that building wealth doesn’t require complicated strategies, constant market monitoring, or a finance degree. It starts with a single decision: opening an account and putting your money to work. Once that system is in place, each contribution adds another layer to the snowball. Over time, your savings generate returns, those returns generate their own returns, and the process begins to accelerate.

Years from now, the wealth you build may seem impressive, but it will have started with this one simple step. The earlier you begin, the longer your financial snowball has to roll downhill and grow into something substantial. You got this!

Everyone starts somewhere. What was your first investment, and what did you learn from it?

Like what you see here? Subscribe so you never miss a post.