STEP 5
INVEST
An Opportunity to save more than what is possible in their home countries and achieve financial goals much earlier, is perhaps the biggest motivator for expats for working in UAE.
When people want to save money, they usually put their net disposable income into a bank account, so that it grows into a sizable capital, that can be used to achieve financial goals like; property investment, funding for children’s college education and retirement, etc… .
While their money is relatively safe, the bank only pays a very low rate of interest. Not only the returns are limited, they never keep pace with the prevailing inflation, decreasing the purchasing power of your money saved.
In order to beat inflation and help achieving financial goals faster, it is very important to invest your savings.
What is Inflation?
Inflation is the general rise in the prices of goods and services. The following video will explain better;
Investing can be much more rewarding, than just beating inflation, if a long term view is taken. One can use a wide range of investment solutions to put his money at work
Investing in a portfolio of multiple asset classes like; Equities, Bonds, Mutual Funds, ETFs, Commodities and Real Estate can potentially grow your investment by 10% – 12% average, helping you beat inflation.
How to Invest?
For some people starting an Investment is more complicated than rocket science, as they continue to be perturbed, by complex investment jargon and unscrupulous investment advisers and bankers.
Beginners in particular find the investments very confusing, having to choose from various options like Stock market, Bonds, Mutual funds, ETFs, IPOs, Commodities, Insurance, Saving Plans, Money back policies, and Alternative Investments…
The Internet and the Media are making things more difficult for the beginners, literally drowning them with information, without the essential supply of oxygen, which in this case would be the unbiased ideas of practical application.
For a novice investor, investing can be very intimidating.
Having said that I’ am not discouraging you, because everyone who is doing great with his investments now, was once struggling, everyone who is now a top investor, was once naive and perturbed.
Quoting Brian Tracy, one of my favorite success gurus;
“Everybody who is at the front of the buffet line of life started at the back of the line. Now here is the question:
How do you get to the front of the buffet line of life, where all the good stuff is waiting for you? The answer is simple.
It consists of two key steps:
First, get in line! Second, stay in line!
It is absolutely amazing the number of people who want to get to the front of the buffet line of life, who admire or envy the people who are already up there enjoying the best that life has to offer, but they don’t get up and get in line themselves.
They don’t realize that life, like a buffet, is self-serve.”
So the key learning is to take the first step, as the Nike slogan says;
“Just do it”
How do I start?
The best thing you can do when you are starting to invest is is to develop a habit of disciplined saving and regular investment, instead of waiting for the right time, or brooding over for ever on the perfect investment strategy.
Your savings however small does not matter, what matters the most is the decision to save regularly and invest the savings.
I am not saying here, that you should start an investment, completely oblivious or ignorant, to the facts and figures, but be careful and take an informed decision on your investment.
An Offshore investment plan offering access to a variety of asset classes like equity, bonds, property, commodities is a good place to start investing.
There are many such plans available in UAE offered by leading insurance companies like Zurich International Life, Generali, Friends Provident and Salama.
Talk to your financial adviser to help you choose the best option suitable for your financial goals.
Make time your best buddy..
The longer your funds are invested, the bigger your investment grows into. The long term return on Mutual Funds, Stocks and Bonds, have always been positive, hence you don’t have to worry too much, on the inherent market risks.
Investing for Short Term and Long Term Financial Goals.
Financial goals can be classified as short term goals and long term goals.
Short Term goals are for financial needs or events occurring within 2 3 years; like;
Saving for such goals is challenging because one is always split between the choices of growth and liquidity.
In order to achieve a higher growth your investment usually requires a longer gestation period allowing your money to grow and multiply, hence compromising the liquidity, while a liquid investment may not offer a higher growth rate.
The following are some of the options which can be used in UAE to invest for short term goals;
Gold in the form of coins or Bars, Gold Certificates, Gold ETFs and Funds
Trading in DFM, Nasdaq and ADX stocks…( 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 is AED 75. For investments less than AED 10,ooo it is better to use other options.
Investing in International Markets: UAE residents can invest in international markets by opening an E-Brokerage account with Citibank.
With this account you can buy and sell securities in the US, UK, Japan, Canada, France, Germany and Switzerland markets and invest in a diversified range of mutual funds, covering major asset classes globally.
Adequate care should be taken while choosing to invest in the international markets, if necessary professional advice should be availed, due to the inherent market risks, currency exchange and tax liabilities.
NRI’s can invest in Indian stock markets via Demat account online. If you do not have a Demat account, you can open a DEMAT account 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 risk and market risk, while investing in Indian stocks or Mutual Funds. If you are a beginner, it is advised to start investing in Blue Chips stocks or mutual funds investing in Large cap or Mid Cap funds, with a time horizon of 2-4 years.
Initial Public Offer (IPO’s) in UAE: UAE is maturing as a financial market, and many family businesses are considering going public. While IPO’s are an attractive investment option, it is also risky, proper assessment of the industry and company prospects is required before investing.
One can also invest in Sukuks issued by various companies in UAE, and some of them provide good returns as well.
Fixed Deposit in India for NRI’s: NRE / NRO fixed deposits are not risky in term of capital, 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 save in FD’s if the funds are required in UAE or else where, because of currency risk due to falling rupee and the less than 9.00% returns may not be attractive enough, if the money has to be repatriated back to UAE.
Choose the options best suiting your short term goals, your risk appetite and liquidity options.
In the following sections we will endeavor to understand investing for long term financial goals like;