Smart savings – getting the best returns on investment in the UAE

Living in the UAE can be highly profitable, with professionals from around the world attracted by the unique lifestyle of tax-free salaries that can help maximise income and build a strong future.

But creating an optimal investment plan is about more than just putting money in a few containers. It’s about laying the foundations for a protected lifestyle and understanding exactly how time will shape your activities. Most importantly, to achieve the best returns on your savings, you need to look at the whole picture rather than just individual parts.

Building the framework for a savings-optimised lifestyle

Savings and investments all boil down to risk. Diversifying and spreading your activities goes a long way towards reducing this risk and maximising potential profit, but it’s important to extend this concept further into your daily life.

Protect your health: Living a healthy lifestyle so that you can realise your long-term goals is an essential part of maximising your returns on your savings activities. The Gulf Cooperation Council (GCC) is one of the fastest-growing populations in the world, expected to increase – largely due to the UAE – by one-third by 2020, according to the Population Reference Bureau.

Of this, over 48% are expatriate workers. This combination of fast growth, stressful working environments and an ageing population contributes to serious health challenges. For instance, cardiovascular disease was the leading cause of death in women in the UAE in 2010.

Investing in health insurance beyond the minimum required by law in the UAE will help protect you from yet another aspect of risk in your long-term savings strategy. By ensuring that your healthcare is adequate and your insurance comprehensive, you guarantee that your other investment activities will work for you for as long as possible and that the fruits of your investment may be enjoyed to their fullest.

Investing in health insurance beyond the minimum required by law in the UAE will help protect you from yet another aspect of risk in your long-term savings strategy.

Look to the future: Where do you see yourself as you approach retirement? While the UAE is popular for its low (or, in some cases, non-existent) tax and high salaries, it’s common for many UAE working professionals to move to other countries as they come closer to their chosen retirement age or a specific financial goal.

The length of time that you plan to spend in the UAE and your desired retirement age will determine the best savings strategy for you. Savings investments give their best value over long periods so any time restriction will shape what’s best for you and may change the amount of risk you can tolerate in your investments.

For instance, a 25-year-old with a retirement age of 65 who plans to live and work in the UAE for that full period can afford to take higher risks in more speculative investments that may bring higher returns. However, an older individual – or one with a younger retirement age – should tend towards reliable, low-risk savings activities such as IRAs (individual retirement accounts) and stocks to reduce the risk of losing money during their shortened investment timeframe.

Investment types – what are your options?

The ways in which you can invest your savings have never been more diverse and you need to know what suits you the most.

1. Offshore savings: An offshore savings account is a fantastic choice for professionals in the UAE, with the chief benefit being stability.

As is common within the UAE, a working professional may have assets in several countries at any given time, with income in their adopted country’s currency and a local bank account for living expenses. Maintaining an offshore account insulates you from the risks of currency fluctuation, making it a viable starting point in the building of a robust savings and investments strategy.

The offshore account can also protect you from difficulties related to the financial regulations of your adopted country. This is especially important for the UAE region, where access to your bank account is closely tied to your employment status.

The story of a working professional losing employment and subsequent access to their local bank account is regrettably common. This is a threat that can be mitigated by investing earnings into an offshore savings account.

2. Retirement accounts: For an expatriate working and living in the UAE, the viability of a retirement account may vary. The concept is, of course, great in theory: tax-deferred or tax-free savings that allow your contributions to go further with the help of compound interest.

But look at the details: depending on your citizenship, you may find yourself restricted in your choice of retirement fund. Due to the complexity of IRAs for expatriates in the UAE, consultation with a wealth manager or financial adviser is recommended to ensure your investments provide the best possible results. In most cases, a retirement account will form a steadfast part of a balanced and efficient savings strategy.

3. Shares: While there’s an element of risk, especially for the beginner, investing in shares (a small share of ownership in a company) has the potential for greater return on investment in a relatively short period.

However, it’s vital that you keep in mind the volatility that this area of investment can see, even in larger and more reliable companies. The performance of your investments will vary and relying on shares alone is usually not advised. Typically, shares should be a medium to long-term investment, which can help offset some risk.

Diversity here is key, so rather than putting all your money into one company, it makes more sense to invest smaller amounts in several companies in order to spread risk. A key advantage is that shares can be purchased in very small amounts, making a diversified portfolio achievable for those with a relatively low budget.

Diversity here is key, so rather than putting all your money into one company, it makes more sense to invest smaller amounts in several companies in order to spread risk.

While you can buy shares directly from a company, you may prefer to enlist the services of a discount broker who will offer research and tools to help you make investing decisions in return for a small to moderate fee. But if you have a significant sum to invest and can afford to pay higher fees, a full-service professional will give you detailed, personalised advice.

4. Bonds: These are a form of debt issued by organisations including governments and companies for a set time period, and are generally considered a lower risk option than shares. The bond yields are linked to interest rates. You can choose variable bonds, where the yield varies according to changing interest rates, or fixed-rate bonds where it is set for the duration of the investment period. The yield also reflects the risk, so the longer the investment period, the higher the risk – and yield.

The advantage with fixed-rate bonds is that the yield is guaranteed, so you know what you’re getting. The disadvantage is that you may miss out according to which way interest rates change during that period. As there are several types of bonds, with varying risks and time periods, it may be a good idea to get independent financial advice if you’re new to this area of investing.

5. Investment funds: They provide a great way to spread risk as funds include a mixture of different types of investments from different companies and often from different markets around the world. Funds vary widely but you can opt for low, medium or high-risk options. The advantage is that a fund manager, who devotes their working life to researching the markets, will make all the key investment decisions according to your risk requirement.

Funds vary widely but you can opt for low, medium or high-risk options.

6. Cryptocurrency: This option is the ultimate in exceptionally high risk and potential reward, with the value of Bitcoin, one of the main digital currencies, increasing from roughly USD 260 as of March 2015 to over USD 11,000 as of March 2018. Unsurprisingly, this recent ‘crypto boom’ has permeated mainstream media and led to millions of amateur and professional investors worldwide flocking to buy.

However, it would be foolish to look towards cryptocurrency as a foundation of your savings plans. The risk of investment is further exacerbated by explosive fluctuation in the value of the major cryptocurrencies, as well as the subject of regulation. Fraudsters are exploiting the lack of regulation to scam would-be investors, and some cryptocurrency exchanges have demonstrated unreliable service where investors see their coins lost entirely.

While the UAE is taking steps towards the regulation and incorporation of cryptocurrency into the UAE economy – such as UAE Exchange entering an agreement with blockchain startup Ripple to facilitate real-time cross-border payments – the combination of these factors makes it extremely dangerous for beginners to indulge in more than modest speculation.

Your optimal strategy defined

In appreciating the importance of your health, you ensure that you can enjoy the results of your hard work to the full. Through understanding how time shapes your acceptance of risk, you create an optimal savings plan to suit your unique situation. By diversifying across different investment types, you build a reliable and profitable strategy that makes your money work for you.

These considerations come together to give you a savings plan that’s optimised to your needs and situation, with minimised risk and maximised potential return on investment, creating a secure future for you and your family.