Investing in Uncertainty: How to Build a Resilient Financial Strategy

Interest rate shifts, currency fluctuations, geopolitical tensions, and markets reacting swiftly to every headline. In recent years, investors have been required to make decisions in an environment where it is difficult to know what will happen in the next five minutes.

The natural question is: Where should one invest in a period of uncertainty?

Yet, this may not be the right question.

During volatile times, the goal is not necessarily to find the investment that will beat the uncertainty, but rather to build a financial structure capable of handling a variety of scenarios.

In other words, instead of trying to predict the next event, it is wise to prepare capital for the possibility that our forecast might be wrong.

Why the Question "Where to Invest Now?" Can Be Misleading

When markets are volatile, it is easy to get dragged into searching for an attractive short-term product, such as a deposit, bonds, domestic stocks, foreign indices, the dollar, or any other option that looks more positive at that exact moment.

However, a decision based solely on current market conditions may ignore the truly crucial question: Does the overall investment structure match your risk levels and investment horizons?

As of August 2026, the Bank of Israel interest rate stands at 3.5%, following several rate cuts throughout the year. At the same time, the Bank of Israel continues to point to a high level of uncertainty. These are precisely the conditions that demonstrate how drastically the investment environment can change in short periods of time.

3 Principles for Building Financial Stability

Principle 1: Divide money according to goals and time

Money needed in a year should not necessarily be managed like money intended for retirement in 20 years. One way to build stability is to divide capital into "layers": money for near-term needs, medium-term capital, and capital intended for long-term growth. Thus, when the market drops, one is not necessarily forced to liquidate long-term investments to fund an immediate need.

Principle 2: Diversify risks - not just products

An investor can hold three funds, two provident funds, and an investment portfolio, and still be exposed to almost the exact same assets. True diversification must be examined at the level of total capital: stocks versus bonds, Israel versus abroad, currencies, sectors, liquidity, investment horizons, and diversification among product manufacturers.

Principle 3: Build a portfolio independent of a single forecast

One of the most important principles in a volatile period is not to build the entire strategy around a single scenario. What if interest rates drop faster than expected? What if they remain high? What if the shekel strengthens, or weakens? A stable portfolio is not one that never drops; rather, it is built so that even when one scenario materializes, the entire financial plan remains unshaken.

Case Study: A Family with One Million Shekels

Let us take an illustrative example. A couple in their 50s holds one million shekels in available cash following the sale of a property. Alongside this sum, they have continuing education funds (keren hishtalmut), pension savings, and a small investment portfolio. The initial instinct might be to ask: Where should we invest the million? But professional analysis starts elsewhere.

200,000 shekels are expected to be needed within about two years to assist their children. Another portion of the capital may be used by the family in the years leading up to retirement, while the remaining money can be invested for the long term.

Investing the entire sum in the same asset class, even if it looks attractive today, can create a mismatch between the investment and the goals. Therefore, instead of a single portfolio trying to solve everything, multiple layers with varying levels of liquidity and risk can be constructed.

5 Mistakes to Avoid When Markets Are Volatile

1. Fleeing from all risk: A sharp shift of all capital to cash following market drops can reduce volatility, but it also harms the capital's ability to grow over time and may lock in losses.

2. Chasing what has already risen: Past performance does not guarantee that the asset class that led the market recently will be the one to lead it tomorrow.

3. Trying to time the market: To make timing work, two correct decisions are required: when to exit and when to return. In practice, this is an extremely complex task that most people fail to achieve.

4. Thinking multiple products equal diversification: Names may vary, but the underlying assets and risks can be very similar.

5. Examining each investment separately: A continuing education fund, an investment portfolio, a pension, real estate, and money in the bank are all part of the same economic picture.