How to Invest in UAE?
The best and the most useful of the investment strategies are always simple to understand and easy to put into practice.
The three bucket investment strategy is a straightforward approach to investing your savings.
It takes into account your investment needs at different life stages to fulfil 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 into liquid or near cash investments.
I would recommend an emergency savings of at least three months household income if you are single or a working couple without children.
If you are a family with children, then I would recommend 4-6 months of household income.
The purpose of this bucket is to help you avoid panic and borrowing during emergencies (Achieving Financial Security)
After 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 Mobile, Laptop, TV etc...
It is recommended to allocate maximum savings into this bucket till you reach the Emergency Savings Threshold(3- 6 months income). Once you have reached the Threshold, you can allocate 20-25% of your savings for short term goals.
Focus on the Liquidity
The idea of investing in this bucket is not to earn good returns, but to have liquid funds for managing an emergency or a job loss, and to 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 very low..
People who do not have this type of saving, usually end up borrowing on credit cards or loans.
They spend loads of money as interest before they repay the borrowed capital, which puts additional stress on their budget and savings.
Bucket 1 - Short-Term Investment Options in UAE
Investing in National Bonds is a good idea considering the safety, liquidity and a slightly better return on investment they offer.
It is easy to buy National Bonds, and one can buy National Bonds online, from Money exchanges and banks. The minimum investment is AED 100. However, it is advised to hold a minimum for AED 3000 to avoid monthly charges.
The holding period is three months, and you can redeem the bonds across the counter via certain Money exchanges.
2. E Saver Accounts / Fixed Deposits in UAE
Many banks in UAE like HSBC, EmiratesNBD, Mashreq, ADCB etc., offer E-saver accounts & Fixed Deposits. These accounts offer higher interest rates than your savings account.
Given the rising interest rates environment, E-saver accounts/FD's are a good choice, providing both returns and liquidity.
Most e-saver accounts have restrictions on withdrawals, which discourages frequent withdrawals from such accounts.
Also if you break theFixed Deposits before maturity, then you may get lower returns. This can encourage you to keep the money in such accounts and use them only for the actual need.
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, Gold, Mutual Funds, Stocks, IPO, etc.,
Allocation into this bucket can be between 10 - 30% of monthly disposable savings...
Also, Read - How to Invest? Where to Invest & When to Invest
Bucket 2 - Medium Term Investment Options in UAE
In the form of coins or Bars, Certificates, ETFs and Funds.
Gold was stagnant in 2017 but has seen ups and downs in 2018. Given that global equity valuations are high It can be a safe haven when other asset classes are going down in value.
Also, there is no VAT on 24 carat gold bars, so it can be a good idea to invest in gold.
Stocks, Sukuks and Bonds
Trading in DFM, Nasdaq and ADX shares...( Emaar, Arabtec, Air Arabia etc....).
This s a good option if you have more than AED 10,000 to invest in a single transaction, as the minimum transaction fees are AED 75.
For investments less than AED 10,000 it is better to use other options.
NRI Investment Options
NRI's can invest in Indian stock markets via Demat account online from UAE. If you do not have a Demat account, you can open a one with Indian Banks like Axis Bank, ICICI Bank, and HDFC from UAE itself, as they have representative offices here.
One has to bear in mind the currency and market risks while investing in Indian stocks or Mutual Funds. However, if you have savings in India in Rupee denomination, it makes sense to invest in Indian stocks & Mutual Funds.
If you are a beginner, I would recommend starting investing in Mutual Funds with a time horizon of 2-5 years.
Indian Mutual Funds for NRI
NRI who have a little or substantial savings in Indian Rupee denomination may invest their savings in Indian Mutual Funds.
In spite of decreasing rupee value, it does not make sense to repatriate money already sent to India, as it involves exchange loss and complex documentation for obtaining RBI approval to repatriate funds.
Investing in Indian Mutual Funds is a good option in this case.
Click here to Schedule a quick call to discuss Investing in Indian Mutual Funds.
Initial Public Offer (IPO's) in UAE
UAE is maturing as a financial market, and many family businesses are considering going public. With Oil prices stabilising around $50-$60, more IPOs are on the cards.
Some of the IPOs expected shortly are; Abu Dhabi Ports, Emirates Global Aluminium, Sennat & Gems Education.
Also, the big one Saudi Aramco's IPO is most likely to happen sometime next year.
One can also invest in Sukuks issued by various companies in UAE, and some of them like DEWA Sukuk provide good returns as well.
Fixed Deposit in India for NRI's
NRE / NRO fixed deposits are capital protected but are susceptible to currency risks.
FD's are ideal when saving for settling a mortgage in India, or when buying property in India, as the funds will be required in INR only.
It is not a good idea to invest in FDs in INR for goals like foreign education or for buying property in UAE
Doing so will expose your savings to currency risk due to falling rupee. However, you can invest in FCNR deposits in the currency of your choice.
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
- Saving for Children's Higher Education
- Saving to move back to Home country for good
- Investing in a Life Insurance ( Term Insurance, Whole of 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 the short-term financial goals and borrowing in case of emergency.
It is best to invest the biggest portion of your disposable savings into this bucket, hence 50 - 70% is recommended under this category.
Bucket 3 - Long-Term Investment Options in UAE
- MetLife UAE - Investor Advantage - Short-term Investment plan for long-term growth and wealth building.
- Capital Protected Endowment Plans from LIC International for Retirement, Children's Higher Education and other financial goals.
- Generali Vision - Regular Savings Plan offering a direct funds investment platform. Facilitating wealth accumulation and growth.
- Wealth Accumulation Plan from Zurich International - For investing your money into International Mutual funds to grow the value of your investment faster.
- Zurich Simple Wealth – the effortless way to invest and build wealth
- Zurich Futura - Whole of Life Insurance plan. It offers additional benefits like;
- Critical Illness Benefit
- Permanent Total disability benefit
- Family Income Benefit
- Accidental Death Benefit
- Hospitalization Benefit
- Dismemberment benefit etc...
- Future Protect from MetLife: 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?
It would be wise to hire an independent financial advisor to help you choose the most suitable investment or insurance plan, based on your goals, time horizon, risk appetite and the current financial situation.
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 helping you achieve your financial goals/needs.