Smartest investment and life plans in UAE

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How to Start Investing – A Step-by-Step Guide for Beginners

By PolicyBazaar

Invest smart today for a better tomorrow

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We all have been listening to it from our elders and seniors that investing money is important if you wish to accomplish your financial goals. However, it’s not so easy to invest. The process of making an investment is a lot more than just picking up the stocks and putting in the money. Since the investment options in the UAE are numerous, you need to understand and learn the art of the best investment. This, in turn, requires deep analytical thinking. You need to set up an investment goal, decide the budget that can be allocated and do a thorough study about the pros and cons of each option. Since there’s a lot to do while investing, it could seem to be quite intimidating, especially for a newbie. 

If you are a beginner, looking forward to starting investing in UAE, mentioned below is a simple step by step approach to do the same:

Start as early as possible

Since interest calculated in the majority of investment options is compound interest, investing at a young age is one of the best investment strategies to earn huge and solid returns.

Apart from this, the stock market is another reason to start early. We all know that there are ups and downs in the stock market. This means if you start investing at a young age, you have years and decades to ride out all the ups and downs of the market.

So, even if you don’t have huge amounts to invest in, start with small, but start it now.

Set a budget to invest

When you've decided to invest, the next thing that comes into play is deciding how much should be invested. Well, this totally depends on your investment goal and the time horizon of the goal.

For instance, if you are investing with a purpose to safeguard your post-retirement period then it's a thumb rule to invest a total of 10 to 15 % of your annual income.  And, for all other goals, calculate the amount required and the time horizon. Then, work backwards to break the requisite amount into monthly (or weekly) instalments.

Understand your investment options

When you start researching, you will see that you have plenty of options to park your money; some are debt-based (where returns are fixed) and the others are equity-linked (where returns are market-linked). Some of the most popular investment tools are gold, property, stocks, bonds, mutual funds, ETFs and so on. With plenty of options, it may become quite confusing to decide which one to pick and which one to leave. It is important to analyse each option and calculate how much risk it carries. Always remember, that the best investment option is the one that has the following characteristics:

  • Guaranteed safety for the invested amount
  • Predictable outcome or guaranteed good return
  • Consistent earnings or payout
  • Hedge against inflation
  • Easy to buy or sell

Pick the right investment strategy

Selection of an investment strategy largely depends upon one's financial goals. It depends on how much money is required and in what time.

For instance, if the time horizon for your goal is 15 to 20 years away, almost all your money can be put in stocks. However, if don't want to get engaged in the complications of stocks, invest in index funds, low-cost stock mutual funds and EFTs. These options will help you diversify your portfolio and diversification is the key to successful investing.  On the other hand, if your goal does not have this long time horizon, it's better to park your money in a savings account, cash management account or a low-risk investment portfolio. This is primarily because stocks are associated with high risks especially when bought for a shorter period of time, say less than 5 years.

Since you're a beginner, picking up the right investment choice could be quite challenging. For such a scenario, you may open an investment account through a Robo-advisor. Robo-advisors offer investment management services by building and looking after your investment portfolio through computer algorithms.

Now, you have got it all about making the right investment. It’s time to get started!