Smartest investment and life plans in UAE

How to Invest in UAE with the 3 Bucket Approach?

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  | Published: 29 January 2020 | Last Updated On: 19 January 2021

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Smartest investment and life plans in UAE

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Those strategies that are easy to understand and put to practice are the ones that are the best answers for the question “how to invest in UAE?”

One of such strategies is the 3 bucket investment approach. This is a straightforward method to invest your savings. It accounts for your investment needs at different stages of your life in order to help you meet your desired financial milestones or goals.

What is The Three Bucket Approach?

This investment method involves three virtual buckets, which help to classify your savings in order to address your different financial goals and needs.

Bucket 1:  Achieving Financial Security

This bucket should be dedicated to your emergency savings and other short term goals. The savings in this bucket should be into liquid or near cash investments. The purpose of holding this bucket is to avoid any panic or borrowing that may be brought during an emergency. You can move onto saving for your financial goals after you have saved a sufficient amount towards your emergency savings. The short term financial goals vary from saving for a vacation to buying any electronics among others.

Focus on Liquidity

The aim of investing in this bucket is to hold liquid funds in order to manage an emergency or to meet short term goals and not to earn great returns. You should hold funds in this bucket that can be accessed within 24-36 hours. The returns on this bucket are usually low because the nature of the investments is very liquid.

People who do not hold any savings, usually find themselves in a situation where they might have to borrow funds on credit cards or loans. A lot of their money is drained on paying the interests and principal, which can be very stressful. 

How to Invest in UAE Using The Short Term Investment Options

  1. National Bonds: Considering the safety, liquidity, and to some extent a better return, it is a good idea to invest in National Bonds. It is very easy to buy National Bonds and can be done online. There are a minimum investment amount and a holding period of 3 months involved.
  2. Fixed Deposits or E-Saver Accounts: These accounts are offered by leading banks in the UAE, and offer high-interest rates than a general savings account. They are a good option in this rising interest environment as they provide both, liquidity and returns. Most of these accounts restrict frequent withdrawal, and if you break your fixed deposit before the maturity date the interest offered is low – this encourages you to use your funds only for emergency requirements.
  3. FCNR Deposits for NRI: Foreign Currency Non-Repartiable are fixed deposits in the US dollar and choice of other currencies. The saving period depends on your immigration and travel needs. In a situation of emergency, the deposit can be broken to withdraw money with no reduction in the capital, but the interest paid on the deposit is relatively low.

Bucket 2: Achieving Financial Well-Being

This bucket is allotted for an aggressive financial strategy that helps in achieving your short to medium period goals like:

  • Buying a car
  • Saving for an exotic vacation
  • Investing in real estate
  • Saving for a business idea
  • Down payments for property
  • Paying off a loan or mortgage

All investments allotted to this bucket are usually less liquid in the short term. Usually, they hold a maturity period of 1-5 years. They may be in volatile assets.

How to Invest in UAE Using The Medium Term Investment Options

  1. Gold: You can invest in the form of gold certificates, bars, funds, and ETFs. It can be a safe investment for times when other asset classes are falling in value.
  2. Open Architecture Investment Platforms: Using such platforms, you can invest in equities and bonds of major exchanges like London, New York, HongKong, etc. A wide range of investment options is provided including funds, ETFs, Equities, etc.
  3. Indian Mutual Funds for NRIs: There are many expats that benefit from the Indian growth opportunities by investing in mutual funds. However, a big deterrent can be the depreciation of the currency. Investment in the US dollar helps in mitigating the currency risk and also helps you earn a good return.
  4. IPOs: As a financial market, UAE is maturing and which is why many businesses are going public.

Bucket 3: Achieving Financial Independence

This bucket is the most important yet is ignored by many. This focuses on long term goals with a duration of more than 5 years, such as:

  • Retirement saving
  • Saving for a child’s education
  • Life insurance investment
  • Saving for a wedding

How to Invest in UAE Using The Long Term Investment Options

  1. Open Architecture Platforms
  2. Endowment Plans
  3. Life Insurance Plans

In a Nutshell

It is good to consult someone with professional experience if you have any confusion with how to invest in UAE in the investment that is most suitable for you depending on your financial goals, time horizon, risk tolerance, and financial standing. It is important to form a proper balance in your buckets, in order to achieve a healthy financial future.