Know about Retirement Planning and the best time to start making investments for a steady stream of money after retirement.
Best Money Saving Tips
Smartest investment and life plans in UAE
As per recent research, an expatriate can turn their savings into a million Dirhams or more in about 9 years (the approximate time an ex-pat stays in the UAE). However, this is solely based on the monthly income as well as the financial planning. To become a millionaire within such a short span, it is highly recommended to consider the aspect of compounding.
Compounding implies reinvesting the income on the original amount and the collective interest in the previous years to raise the invested amount every year. The following sections will help you find out more about the power of compounding and how it can help you earn AED 1 million in the UAE.
The power of compounding simply refers to the phenomenon of adding interest to the interest. The money that you invest will help you generate income from both the original amount as well as the accumulated interest from the earlier compounding periods. This method can help you multiply your wealth with time.
However, to ensure that compounding works, you must keep the money invested in the program of your choice for a considerable period. Ultimately, to compound your money the right way, you should ensure that you are earning more interest on the money you initially invested.
As per wealth advisors in the country, even if you end up saving up to AED 5,000 every month for 7 years, you can earn more than double your money and earn about AED 1 million. However, this will require a healthy practice of setting aside a predetermined amount of money. To further strengthen the retirement nest, it is advisable to not touch the accumulated funds for another 13 years.
One of the best ways to multiply your savings is to invest in the stock market or create a diversified investment portfolio. To achieve your target of earning a million dirham in 7 years, you would need to earn at least an 8% annual return on average. The stock market in the UAE in general can offer you an annual return of 10%, even if you invest a fixed portion of your income in market-linked index funds that can help you track the overall market performance.
However, it is advisable to balance your risk and develop an assorted portfolio of stocks, cryptocurrencies, bonds, ETFs, and more. Some of the investment options in UAE you can consider for yourself are discussed below –
One of the best plans for expatriate investors in the UAE is to invest in the stock markets and trade the equity of multiple companies. Dubai has two stock exchanges - Dubai Financial Market (DFM) and the NASDAQ Dubai. In the first quarter of 2022 itself, the DFM reflected a 17% increase in profit.
Meanwhile, tNASDAQ Dubai is progressively working on meeting the international standards of listing domestic and multinational companies.
To multiply your investments, you can even create a cumulative Fixed Deposit. Here, the interest is generated on the reinvestment of your initial amount, giving you the perks of compounding return. All the interest earned is added to the initial principal amount. This investment plan is beneficial if obtained for the long-term.
Systematic Investment Plan or SIP is an easy way to invest in mutual funds regularly and systematically. The SIPs require you to build the habit of investing while enabling you to compound the money you have invested by investing in one or more companies. They help in compounding funds in a systematic manner as opposed to investing a lump sum amount.
With Real Estate Investment Trusts (REITs), you can invest in the real estate market of the UAE without purchasing any property. These are simply the shares of the companies that purchase a property (a.k.a. Equity REITs) or offer mortgage services to real estate investors (mortgage REITs). You can earn the returns via the appreciation of the REITs or through dividends.
The following are the advantages of investing in plans that work on compounding –
One of the best practices that you can take into consideration is to start saving early, as compound interest is more helpful in multiplying the income over a longer period. Moreover, you should try to invest a fixed proportion of your income each month to accumulate interest on it, which can gradually grow into a million Dirhams.
Other factors to consider when investing in plans that work on compounding are –
You can set aside any amount, be it a small or large portion of your income, and invest it for good returns. While a monthly income of AED 5,000 may limit your scope of investment with respect to the aim of AED 1 million, you can still earn a good return and even reach your goal (albeit in a longer duration).
To reach the goal here, you need to start saving as soon as possible and contribute to the investment regularly without withdrawing any amount. If you earn AED 5,000, you can even earn about a 5% interest by investing in assets like equities, bonds, commodities, real estate, cryptocurrency, and foreign exchange.
If you begin saving early on in your life, you can easily save a seven-digit amount by the time you turn 50. However, if you plan to start saving at 50, you can still make AED 1 million in about 15 to 20 years. Most financial planners state that your retirement income should be at least 80% of your final pre-retirement annual income. For this, you should allow your savings to grow at a 4% rate per annum. You can also aim for a 10% return, although keep in mind that a high return investment source may also have a considerable risk factor.