Guide to Earn AED 1 Million Quickly in the UAE

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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. 

What does the Power of Compounding Mean?

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. 

How Does Compound Interest Work?

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 –

Stock Market 

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. 

Fixed Deposits 

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

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. 

Real Estate Investment Trust

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. 

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Benefits of the Power of Compounding

The following are the advantages of investing in plans that work on compounding –

  1. Higher and quicker returns on investments than the simple interest
  2. Encourage you to use the investment plans responsibly and for the long term to earn the high returns 
  3. Encourage you to invest regularly for more promising returns on investment 

How to Earn More from the Investments?

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 –

  • Choose the Right Type of Plan - You should select an investment plan that promises higher returns on investment with as low risk as possible. Since the investment sector is dynamic and diversified, you can even take a financial planner’s assistance to make the right decision. 
  • Consistency – It is highly recommended to invest regularly to increase your investment returns. This also helps in exploring a larger platform to strengthen your future return on investments. 

How to Become a Millionaire if You Earn AED 5,000?

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. 

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Can You Retire as a Millionaire Despite being in Your 50s?

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. 

Key Takeaways

  • Compounding is simply a way of adding interest to the interest as well as the invested amount. The funds that you receive at the end of the tenure are an accumulation of the compound interest and the initial principal amount. 
  • An ideal way of investing for the ex-pats, you can earn a high return on investment in approximately 9 years with compounding  
  • One of the best places to invest in the UAE is the stock market. The other investment plans include cumulative fixed deposits, SIPs, and REITs. 
  • In cumulative fixed deposits, the interest is incurred on the reinvestment of your principal amount 
  • SIPs are designed to build the habit of investing and earning compound interest on the invested funds 
  • Some of the benefits of compounding include - earning faster and better returns on the investment, developing the habit of saving and investing, compatibility with most investment options, and more 
  • To become a millionaire in a short time span, you should begin investing early, choose the right type of investment products, and remain regular with your investments 
  • You can become a millionaire even if you earn only AED 5,000. For this, you can invest even a small portion of your money in the right schemes that ensure high returns for a long time. Even if you earn a 5% return on investment, you can achieve the goal. 
  • One should always aim for diversification by investing in multiple options like shares, bonds, real estate, cryptocurrency, and foreign exchange 
  • If you plan to start your investment at the age of 50, you can still earn a million Dirhams in 15 to 20 years based on your investment plan 
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