Investing in UAE
What is the Best Investment in UAE for Expats?
Luxuries of the past have become the needs of today; e.g. Private Schooling, Branded Clothing,...
Investments, Market Linked
Investing is crucial for achieving financial security and realizing your goals.
It makes money work for you, help you grow wealth, beat inflation, and creates regular passive income.
The United Arab Emirates (UAE), with its robust economy and diverse investment landscape, offers investors a wide range of investments.
Real Estate, Stocks, Bonds, Mutal Funds, ETFs, Endowment Plans, Bank deposits, Pension plans, Cryptocurrency, Art, and collectibles are a few examples.
Understanding the best investment options in UAE can help you make informed decisions whether you have short, medium, or long-term goals.
How to Invest in UAE?
Here are three steps you should take before investing your savings:
Set your financial goals.
"A goal set is halfway reached" - Zig Ziglar.
What are you saving for? A downpayment on a house? Retirement? Your child's education?
Determine your short, medium, and long-term goals through a Holistic Financial Plan. Prioritize based on the importance and time left to achieve the goal.
Once you know your goals, you can start choosing investments aligned with them.
Understand your risk tolerance.
Understand the difference between risk and volatility. Determine how much risk you are comfortable taking with your money.
If you're risk-averse, you'll want to choose less volatile investments. If you're more risk-tolerant, you may be able to take on more risk for the potential of higher returns.
Your risk ability may also depend on your investment horizon. You can invest in volatile assets if your horizon is long. If it is short, consider safer assets with lower returns.
Most people fail at investing because their investments are not aligned with the goal horizon. They may have to pull out the assets when the markets are down to fund the goal.
Do your research
Before investing in anything, it's essential to comprehend the risks involved. This includes understanding the different types of investments available and the risks and potential returns associated with each one.
The Best Investment Approach
The best investment strategy is one that is simple to understand and easy to put into practice.
The three-bucket investment is one such simple and proven approach to investing your savings efficiently.
It helps you classify and focus on your short, medium, and long-term investment needs to fulfill diverse financial goals.
What is the 3 Bucket Investment Approach?
As the name and picture above suggest, it involves three virtual buckets, which classify your savings to address different financial needs & goals.
Bucket No 1 - To Achieve Financial Security.
Bucket One is for your Emergency Savings and Short Term Goals. Savings under this bucket should be liquid or near cash investments.
People with adequate emergency savings have always felt financially secure.
The Covid -19 pandemic was a sad reminder for many of the importance of emergency Savings. People with adequate emergency savings were less stressed about finances than those who didn't have sufficient savings. They are more confident of weathering this storm with little difficulty.
In fact, people with more than adequate savings could make the best of the property and stock market downturn in 2020 and buy quality assets at much lower prices.
This bucket aims to help you Achieve Financial Security and avoid panic and high-cost borrowing during emergencies.
I recommend an emergency savings of at least three months of household income if you are single or a working couple without children. I recommend 4-6 months of household income if you are a family with children.
Once you have reached your emergency savings threshold(3- 6 months income), you can add more money to this bucket for short-term goals like Annual Vacation, Electronics like a smartphone, Laptop, TV, etc...
Also, Read 5 Important Differences Between Savings & Investing
It would be best to focus on filling this bucket at the earliest by allocating maximum savings to reach your emergency funds threshold. (3-6 months income)
Afterward, you can allocate 20-25% of your savings for other short-term goals.
Focus on the Liquidity
Investing in this bucket is not to earn good returns but to have liquid funds to manage an emergency or a job loss and meet short-term goals.
All or most of the funds in this bucket must be accessible in 24 to 36 hours!
Because you are investing in very liquid or next to cash assets, the returns from this investment are usually meager (1-3%), but that's ok.
People who do not have liquidity usually end up borrowing on credit cards or high-interest loans.
They spend more on interest and sometimes on late fees and penalties, causing more stress on their feeble financial situation.
Best Investment Options for Short-Term Goals
1. National Bonds
2. Virtual & Digital Bank accounts
3. FCNR deposits in favorable currencies
4. Term Deposits and Recurring Deposits
National Bonds
Investing in National Bonds is a good idea considering the safety, liquidity, and a slightly better return on investment.
You can buy National Bonds online, Money exchanges and banks. The minimum investment is AED3000, and additional top-up in the denominations of AED100.
The holding period is three months, and you can redeem the bonds across the counter via certain Money exchanges.
Click here to visit the National Bonds Website for more information.
Virtual Banks/ Digital Accounts
Digital / Virtual bank accounts have become the in-thing they offer convenience at a low cost. They also offer deposit accounts known as goal accounts, helping you track and save for those goals.
You can create different goal accounts for emergency savings and other short-term goals and set up automatic transfers from your main account. Liv, the most prominent digital bank in the UAE, pays up to 1.50% Pa interest on your goal accounts.
FCNR Deposits for NRI
Foreign Currency Non-Repatriable are fixed deposit accounts in US Dollars and other foreign currencies. Based on your travel and immigration needs, you can save in these accounts for periods ranging from 1 year to 5 years.
In an emergency, you can break the deposit to withdraw your money without any reduction in capital. However, the interest paid would be lower.
Bucket No 2 - To Achieve Financial Well-being
Bucket 2 is for an aggressive investment strategy, helping to achieve short to medium-term financial goals like;
- Down Payment for Property
- Buying your dream car
- Saving for your Dream Vacation
- Investment in Real Estate
- Paying off a mortgage and other debts
- Saving for starting a business
Investments in this bucket are less liquid in the short term, with a maturity of 1 year to 5 years.
They may be in volatile assets like Stocks, Bonds, ETFs, Mutual Funds, and gold.
Allocation into this bucket can be 10 - 30% of monthly disposable savings...
Also, Read - How to Invest? Where to Invest & When to Invest
Best Investment Options for Medium-Term Goals
Gold
In the form of coins or Bars, Certificates, ETFs, and Funds.
Gold was stagnant in 2017 but has seen a strong rally in 2018 and 2019. Given that global equity valuations are high, It can be a safe haven when other asset classes are down in value.
Also, there is no VAT on 24-carat gold bars, so investing in gold can be a good idea.
Trading Accounts / Offshore Investment Trusts
Trading accounts like Saxo Bank and Wealth Platforms like Ardan provide access to a wide range of investments like funds, Structured Products, ETFs, Equities, Mutual funds, bonds, and REITs.
Such platforms give you a wide choice of asset classes to invest in, and there are no surrender penalties or lock-in periods. They are pay-as-you-go accounts with the flexibility of both growth and liquidity.
Indian Mutual Funds for NRI in US Dollar Denomination
Many Indian ex-pats want to participate and benefit from the growth opportunities in India by investing in Mutual funds. Still, currency depreciation can be a significant deterrent in this case.
Investing in Indian Mutual Funds in US Dollar Denomination can help you mitigate currency risk and achieve good growth on your investment.
Click here to view the top 10 Indian Mutual Funds in the US Dollar denomination.
Such investments can be made both on lumpsum investments or regular monthly investments of USD 1,000 and above.
Corporate and Sovereign Bond Mutual Funds and ETF
Sovereign Bonds issued by stable governments(US, Europe, India, China, UAE, Saudi & Qatar) are considered safe as the probability of default of a sovereign bond is relatively lower than other bond types. You can invest in a diversified portfolio of Sovereign bonds through Bonds funds via platforms like Saxo Bank and Ardan Investment Trust.
While Sovereign bonds are less volatile, they offer relatively lower returns than Corporate Bonds. You may also consider a portfolio of Corporate bonds.
Bucket No 3 - To Achieve Financial Independence
Bucket 3 is the most important but, unfortunately, the most ignored. This strategy is focused on long-term goals with a time of 5 years and above, like
- Saving for retirement or financial freedom
- Saving for Children's Higher Education
- Saving for Migration/ moving back to Home country
- Investing in a Life Insurance ( Term Insurance, Whole Life, or Endowment Plans)
- Saving for Daughter's Marriage
- Legacy Planning
It is not surprising to read many articles on Gulf news about people leaving UAE empty-handed after spending many years in Debt.
It happens because people ignore this bucket and focus more on short-term financial goals and borrowing in case of an emergency.
Investing a considerable portion of your disposable savings into this bucket is best. Hence 50 - 70% of your savings are recommended under this category.
Best Investment Options for Long-Term Goals
Zurich Wealth Accumulation
- Flexible Investment Plan: You can start with a minimum investment of USD 30,000 and add additional premiums as a Systematic Investment Plan(SIP) or at your discretion. With this plan, you can build a portfolio of international investment funds helping you beat inflation and grow your wealth.
Open Architecture - Investment Platforms
- Saxo Bank, Ardan Investment Platform & StockAl Investment Platform are a few platforms that provide access to a wide range of investment options like Mutual funds, Low-cost ETFs, Equities, REITs, and Structured Notes.
Regular Savings Plans or Systematic Investment Plans
Leading providers like Zurich, MetLife, Salama, Investors Trust, Oman Insurance, and Orient provide such plans. They are ideal for accumulating capital and building long-term wealth using regular monthly savings.
Capital Protected Endowment Plans from LIC International
For Retirement, Children's Higher Education, and other financial goals.
Zurich Simple Wealth
As the name suggests, Zurich Simple Wealth is a simple & straightforward lumpsum investment plan helping you grow your wealth. It is ideal for beginners and seasoned investors looking to invest for Medium or long-term goals.
Zurich Futura
Life insurance can be much more than providing money for your family money in your absence. Futura is a Flexible, Whole Life Insurance policy providing life cover, living benefits, and cash surrender value to complement your retirement savings.
Future Protect from MetLife:
This is a unique insurance plan with Annuity benefits. It also enables savings for retirement while protecting the loss of income due to death, disability, and critical illness.
Also, Read - How to invest for passive income?
Summary
I suggest hiring an independent financial advisor when investing for medium to long-term goals. They can help you build a Holistic Financial Plan, choose investments aligned with your goals, and manage them efficiently to achieve them easily.
What about you, Are you investing to achieve your short and long-term financial goals?
If not! Why?
What is stopping you?
Are you perturbed? Do not worry...
Arrange a free consultation to discuss investment options to help you achieve your financial goals/needs.
