The United Arab Emirates (UAE) is a land of great economic opportunities and has a high potential for sustained growth. With its strategic location between Europe, Asia, and Africa, the country has become a hub for business, trade, and investment. Moreover, the UAE government has made considerable efforts to promote foreign investment and create a favourable business environment, attracting millions of expatriates and investors from around the world.
With a booming economy and a government committed to attracting foreign investment, the UAE offers a range of investment options for individuals with different financial goals and risk profiles. Moreover, the country has a developed financial sector that provides various investment opportunities to suit different preferences and risk profiles. From traditional investments such as real estate and stocks to alternative options like cryptocurrency and commodities, there are numerous ways to invest money in the UAE. All of this simply underlines the fact that UAE can be a lucrative opportunity for individuals looking to grow their wealth.
If you are looking for the best investment in UAE, you are at the right place. In this article, we will explore the best investment opportunity in UAE and provide tips on how to invest wisely.
Keep reading to find out.
A) Investment in UAE begins with an investment plan
Investing can be a great way to increase your wealth and secure your financial future, but it’s vital to approach it with a thorough investment plan. In the UAE, there are many financial investment options available, including stocks, mutual funds, private equity, commodities, and cryptocurrency. However, before you start investing, it’s important to create a plan that’s tailored to your financial situation, goals, and risk tolerance.
Whether you have limited funds for a small investment, considerable capital for a bigger investment, or have received sudden wealth from a windfall, it’s crucial to establish a solid investment plan before proceeding.
So how do you achieve that?
Here are four critical steps you should take into consideration before investing in UAE.
1. Understanding your current financial situation
The initial step to formulating an investment plan is to comprehend your present financial situation. This involves evaluating your income, expenses, assets, and debts. You can initiate the process by preparing a budget that traces your income and expenses, which allows you to monitor where your money is being spent each month. This will enable you to spot areas where you can trim expenses, create room for investment and find the best investment opportunity in UAE tailored to your needs.
The next step is to take inventory of your assets and liabilities. Assets encompass savings accounts, investments, and real estate, while liabilities include loans, credit card debts, and mortgages. By comprehending your net worth, you can obtain a better understanding of your overall financial well-being and how much capital is at your disposal for investing.
2. Create clear investment goals
After gaining a comprehensive understanding of your financial situation, the subsequent step is to establish well-defined investment objectives. What do you aspire to attain through investing? Do you intend to accumulate long-term wealth or generate short-term income? Are you investing for retirement purposes? Are you willing to accept more significant risks for the possibility of higher returns, or do you prefer a more cautious approach? Your investment objectives must be precise, quantifiable, and achievable. For instance, you could set a goal to save a specific sum of money for retirement or strive to produce a specific percentage return on your investments each year.
Step 3: Allocate a Budget and Determine Your Investment Amount
After establishing your investment goals, the subsequent step is to allocate a budget and determine the amount you intend to invest. This decision will depend on your financial circumstances, objectives, and risk tolerance. While some experts advise investing between 10-15% of your income, others recommend investing as much as feasible. Nevertheless, it’s crucial to be practical about how much you can invest and avoid risking more than you can afford to lose.
4. Start an Emergency Fund
Before deciding on the best investment in UAE, you must take time to set aside some money to create an emergency fund. An emergency fund is essentially a sum of money set aside to cater to unforeseen expenses resulting from situations like the loss of your job, medical emergencies, natural disasters, and so on. Ideally, your emergency fund should be able to sustain you for three to six months without any other financial income. This will help you to avoid liquidating your investments and thereby miss out on the financial returns you stand to gain.
Also, it is important to remember that when it comes to emergency funds, liquidity is the primary concern rather than profitability. So make sure you invest your emergency funds where you can access them immediately in case emergencies arise.
B) Why you should embrace long-term investing
When considering the best investment opportunity in UAE, it is crucial to prioritise your long-term investment goals over short-term, quick-profit thinking. Despite the possibility of increased volatility in the short term, long-term investments offer the potential for higher returns when compared to short-term investing. Over time, markets generally trend upward, and by holding onto investments for the long term, investors can benefit from compounding returns and capture gains. Additionally, in the UAE, long-term capital gains are taxed at a lower rate than short-term gains, resulting in more profits.
Long-term investing can also help reduce transaction costs associated with buying and selling investments. By reducing the number of transactions needed, investors can lower overall costs. Furthermore, investing for the long term can help investors avoid impulsive decisions based on short-term market movements, providing greater stability and peace of mind.
Consistently investing a portion of income and reinvesting returns over time can also help investors build wealth. This is due in part to the powerful effect of compound interest, which can help a portfolio grow faster as returns are reinvested and interest is earned on the original investment as well as the returns.
Lastly, you must take note that there is a difference between investing and saving. Savings accounts, fixed deposits, and certificates of deposit are not considered investments as they do not offer the necessary returns to achieve long-term investment goals. With more and more banks offering lesser interest rates coupled with the rising inflation rate, savings accounts may end up resulting in a loss of money over time.
Therefore, it is recommended to avoid investing in savings accounts, and fixed deposits, if you want to make your money work for you over the long haul.
C) 6 ways to invest money in the UAE
Now that you know the importance of long-term investments and how to plan them to suit your needs, the next thing is to consider where to invest your money.
Here are the six best investment in UAE that all intelligent investors should consider.
1. Stocks
A stock is part of a company’s capital that individual or institutional investors can purchase.
A portion of a business becomes yours when you buy its stock. Two methods exist for profiting from asset ownership:
Dividends: The vast majority of businesses choose to distribute a portion of their net revenue to shareholders. We refer to this part as a dividend. Depending on the number of shares you own, the company will pay you a dividend. Most businesses distribute profits every three months.
Price appreciation: For our purposes (long-term investing), the allure of stocks lies in the increase in their value (as determined by the stock price) over a period of many years.
If you invested 100 AED in stock in 2010 and it is now worth 250 AED, you have made a profit of 150 AED. So as an investor, all you need to do right now, is to sit tight, be patient and watch your investment grow as the company grows.
To participate in the UAE stock market, you will require the services of a stockbroker who can provide you access to any of the three UAE stock exchanges – Dubai Financial Market (DFM), NASDAQ Dubai, and Abu Dhabi Securities Exchange (ADX).
A stockbroker acts as an intermediary, facilitating transactions between buyers and sellers on stock exchanges. Without a broker, you cannot buy or sell stocks in the UAE or any other stock exchange. Thus, selecting the right broker is an essential first step in learning how to invest in the UAE stock market.
Any UAE broker can offer you access to any of the three UAE stock exchanges mentioned above. However, if your investment objectives involve purchasing foreign stocks such as Google, Apple, or Facebook, you will need a broker with access to international stock exchanges like the New York Stock Exchange (NYSE) and NASDAQ.
Simply put, while understanding how to invest in the UAE stock market is beneficial, you can also broaden your horizons to include other stock markets.
2. Bonds
Another investment in UAE that you can consider making is bonds.
Bonds are debt instruments that allow governments and corporations to raise funds. There are three types of bonds: corporate, treasury (national), and municipal bonds. Also, with bonds, you can earn money in two ways: through interest payments and growth in bond value.
Bond issuers pay interest twice a year at a fixed interest rate, unlike stocks that have no fixed rate. Moreover, bond value can also grow when interest rates decrease and new bonds are issued at lower rates, increasing the value of older bonds. Bonds are generally issued for a long period of time and can provide a consistent stream of income for a specified number of years. You can also sell them at a higher price before maturity to earn more money. Compared to other investments, bonds are considered less risky and are typically used to balance stock investments.
If you are considering investing in corporate bonds, it is essential to conduct thorough research to determine the company’s risk profile, as defined by bond rating agencies. This will help you understand the company’s ability to repay the debt and the level of risk associated with the investment.
3. Mutual Funds
You can discuss investment options without mentioning one of the best investment in UAE – mutual funds. If you don’t have the time or expertise to evaluate the stock market, then mutual funds are the easiest option for investing in stocks and bonds.
Mutual funds pool money from several individual investors and invest them in stocks, bonds, and other securities under the supervision of a fund manager. The fund manager is an experienced expert in the market who can select individual stocks or bonds. By pooling resources from different investors, mutual funds offer diversification as they can invest in several companies.
When an individual purchases a mutual fund, they own a portion of the mutual fund rather than the individual investments. The mutual fund operates as a company, so the shareholder doesn’t own the stocks or bonds the mutual fund purchases, but the mutual fund itself.
Mutual funds make money through dividend/interest payments and appreciation in the mutual fund’s value. As the mutual fund grows, the value of the share price also grows.
Mutual funds can be categorised based on their trading methods and investment types. Based on trade, there are open-ended and close-ended mutual funds. Based on investing philosophy, there are passively-managed and actively-managed mutual funds.
Passively-managed mutual funds attempt to match the market’s performance instead of trying to beat it, while actively-managed mutual funds attempt to outperform the market. Actively-managed mutual funds frequently buy and sell stocks, bonds, and other investments, incurring higher fees and taxes, making them more expensive.
Understanding the difference between active and passive investments is critical to your wealth-building journey. While active investments promise higher returns for higher risk, they have historically failed to deliver higher returns, making them unsuitable for your portfolio. Furthermore, active mutual funds are less transparent, valuing flexibility over transparency.
4. Exchange Traded Fund
Exchange Traded Fund (or ETF) is a type of fund that is listed on a stock exchange and traded like a stock. ETFs in the UAE provide investors with an opportunity to invest in a diversified portfolio of assets, such as stocks, bonds, commodities, and currencies, with a single investment.
ETF investment in UAE has gained popularity in recent years, and there are several ETFs listed on the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX). These ETFs provide investors with exposure to various asset classes, sectors, and regions, allowing them to diversify their investment portfolios and potentially reduce their overall investment risk. ETFs are also gaining traction as an investment asset over the past decade, especially for those seeking diversification. With a single share of an ETF, investors can gain exposure to multiple stocks or bonds within that particular basket. However, purchasing several ETFs can provide even more diversification, which can help reduce portfolio risk.
For instance, an investor can buy an ETF of US stocks, an ETF of international stocks, an ETF of global REITs, and an ETF of US bonds. Combining various ETFs that spread across different markets offers investors more diversification benefits than buying individual stocks, bonds, or REITs. Moreover, using ETFs as part of an investment strategy can offer investors diversification at a fraction of the cost.
That said, if you are wondering about the difference between ETFs and Mutual Funds, you are not alone. Here are some differences between ETFs and Mutual Funds in UAE:
Trading: ETFs are traded on an exchange like a stock, meaning they can be bought and sold throughout the trading day at market prices. Mutual funds, on the other hand, are bought and sold at the end-of-day net asset value (NAV) price, which is calculated based on the value of the underlying assets.
Cost: ETFs generally have lower expenses than mutual funds, mainly due to their passive management style.
Transparency: ETFs are required to disclose their holdings on a daily basis, which means investors can see exactly what assets the fund is holding. Mutual funds typically only disclose their holdings on a quarterly or semi-annual basis.
Flexibility: ETFs offer greater flexibility in trading, as investors can buy and sell shares at any time during the trading day. Mutual funds, on the other hand, require investors to place orders before the end of the trading day.
Minimum investment: Mutual funds may have higher minimum investment requirements than ETFs, making them less accessible to small investors.
5. REITs
If you’re interested in an investment opportunity in UAE real estate market but don’t want the hassle of owning property, there’s a great alternative: Real Estate Investment Trusts or REITs.
REITs represent stocks of companies that invest in real estate properties (Equity REITs) or provide mortgage financing to real estate investors (Mortgage REITs). You can buy and sell REITs just like shares of any other company, and instead of owning and managing property, you own a share of a company that invests in the market.
REITs generate income from dividends and an increase in the value of the REIT. They typically pay out regular dividends, making them a reliable income source for investors.
According to a PWC report, the UAE has one of the highest annual dividend yields on REITs globally, surpassing major countries like the US, UK, Germany, Australia, and Singapore.
REITs are ideal for those seeking investment in UAE’s real estate market while avoiding property ownership risks. Buying REITs as ETFs is the best approach, similar to buying equity and bond ETFs, as it provides more diversification for your portfolio. Avoid purchasing individual REITs as it carries the same risks as purchasing individual stocks.
6. Cryptocurrencies
Another investment opportunity in UAE that you can consider is cryptocurrency. Although a relatively new and highly volatile investment option, cryptocurrency has gained significant popularity in the UAE in recent years. While it can provide investors with high potential returns, it also carries significant risks.
In the UAE, the use of cryptocurrency is not yet fully regulated, and the regulatory framework around cryptocurrency is still evolving. However, the UAE government has taken steps to regulate the industry, including the launch of the Emirates Blockchain Strategy 2021, which aims to position the country as a leader in blockchain technology.
Investing in cryptocurrency in the UAE can be done through a variety of channels. Here are some common ways to invest in cryptocurrency in the UAE:
Cryptocurrency exchanges: Several cryptocurrency exchanges in the UAE allow users to buy, sell, and trade cryptocurrencies. Some popular exchanges in the UAE include BitOasis, Binance, and Kraken.
Cryptocurrency ATMs: Cryptocurrency ATMs have become increasingly popular in the UAE, allowing users to buy and sell cryptocurrencies in person. Some popular cryptocurrency ATMs in the UAE include Bitex and BCB ATM.
Cryptocurrency investment funds:Cryptocurrency investment funds are investment vehicles that allow investors to invest in a portfolio of cryptocurrencies managed by professionals. Some examples of cryptocurrency investment funds in the UAE include 3iQ Digital Asset Management and Grayscale Bitcoin Trust.
Cryptocurrencies are not exactly the best investment in UAE as of now due to their highly volatile nature. Therefore, before investing in cryptocurrency in the UAE, it is important to do your research, understand the risks involved, and consult with a financial advisor. It is also important to be aware of any regulatory requirements or restrictions related to cryptocurrency investments in the UAE.
Conclusion
Investment in UAE can be a great way to diversify your portfolio and potentially earn a good return. Whether you’re interested in Real Estate Investment Trusts (REITs), Exchange Traded Funds (ETFs), or individual stocks and bonds, investment opportunity in UAE market are plentiful.
At Nair & Nelliyatt Chartered Accountants, we understand that investing can be overwhelming and complex. That’s why we offer investment advice and management services to help you make informed decisions and maximise your returns. Our team of experienced accounting professionals can provide personalised guidance tailored to your unique financial goals. We use a variety of tools and strategies to help manage your investments, including asset allocation, diversification, and ongoing monitoring and analysis. Our goal is to help you achieve your financial objectives while minimising risk and maximising your potential returns.
If you’re looking for investment opportunities in UAE, or wonder what the best investment in UAE is, we encourage you to contact us today at info@nn-ca.com or give us a call at +97143577678 to learn more about how we can help you achieve your financial goals.
