Consider two coworkers earning the same AED10,000 every month: Person. A saves 20% of their income and invests it in some of the best investments in the UAE, while Person B splurges all their income on luxuries.
Which of the two have a higher potential of becoming wealthy?
The fact that the answer is obvious shows that becoming wealthy is not all about earning a high income, but rather how you can explore and use the best investment opportunities to your advantage.
“It’s not how much money you make,” says Robert Kiyosaki, the renowned American investor and businessman, “but how much money you keep, how hard it works for you, and how many generations you keep it for.”
This is why even though they don’t pay income taxes, many people in the United Arab Emirates have been unable to build wealth. They spend their income on nonessentials (‘aspirational indulgences’), trying to keep up with the Dubai lifestyle instead of making their money work for them through numerous UAE investment opportunities.
But this does not have to be your experience. You can join the league of UAE expats and nationals who have made money work for them, commanding and using it to bring in more money.
In this article, we will consider 15 of the best investment opportunities in the UAE where you can build wealth by making your money work for you.
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The stock market remains one of the most popular ways to make money globally.
A stock is a portion of ownership in a company. The ownership of a company is divided into several shares and investors can buy and sell these shares in the stock market.
When you own shares in a company, you can get rewarded in two ways.
First, when the company earns income, it can pay a portion of it – called a dividend – to all the shareholders. The amount you receive will depend on the number of shares you own.
Second, you can sell the shares you own in the company at a higher price than what you bought them for – what is referred to as a capital gain. For example, if you purchased 10 shares of Emirates NBD at AED10 per share, you can sell them when the price is AED18 per share, for a capital gain of AED8 per share (or AED 80 in total).
A company’s stock price often correlates with its earnings (or income). So, the more income the company makes over the years, the higher the stock price.
Though traders can make money from stock trading, investors who see it as a long-term investment can make a fortune. For example, if you spent $1,000 buying shares in NVIDIA Corporation, a US company, 5 years ago (from the time of writing), you can sell those same number of shares for $18,354.
However, though stocks can provide high returns, they are also risky. A company with so much potential can crumble due to general economic conditions or technological innovation. Imagine if you had invested in Blackberry.
Between 2014 and 2023, the UAE stock market provided an average annual return of 9.97%. This means you would have almost doubled your investment in those 10 years. As we will see, this is higher than the returns provided by most other asset classes.
With stocks, you won’t be in this situation since the stock market tends to outperform inflation, making investing your money a better option than consumption.
Stock prices are volatile (they move up and down frequently) and investors who don’t have a long-term horizon might end up making mistakes due to fear or greed.
A bond is a debt instrument that national (and subnational) governments and companies use to raise money.
The bond’s purchaser is a creditor and the buyer is a debtor. Like a typical loan, the debtor will repay the capital with interest.
For bonds, interest is usually paid twice a year in the form of coupons while the principal amount is repaid at the bond’s maturity (if you buy a 10-year bond, it matures at the end of 10 years).
You can make money from a bond in two ways.
First, you will receive coupon payments twice a year. Second, you can sell the bond instead of holding it till maturity. Like stocks, you can earn a capital gain on bonds by selling them at a higher price than you bought them.
There are three types of bonds based on the issuer (debtor):
Investors have used bonds to diversify their portfolios and reduce the risk of investing in stocks. When the economy is facing a downturn, they pack money into bonds to protect themselves from the poor performance of stocks.
Since investors have different risk profiles, there are different investment assets designed for them.
A 20-year-old just entering the workforce might want to buy lots of stocks – high risk, high return. On the other hand, a 60-year-old who is about to retire will prioritise capital preservation – low risk, low returns.
When capital preservation is the goal, investors have to turn to fixed-income securities. In addition to bonds, considered above, we also have the following fixed-income securities:
If you are looking for safe investment options in Dubai, bonds and fixed-income securities are appropriate. Annuities also belong to that class.
An annuity is a contract between you and an insurance company that obligates them to pay you either immediately (immediate annuity) or in the future (deferred annuity) in exchange for your premium contributions.
Premium payments can be a lump sum or a series of payments. Similarly, the payment you receive from the insurer can be a lump sum or a series of payments.
Investors buy annuities when they want a fixed payment or series of payments within a period.
This is especially applicable to retirees. They can liquidate their retirement portfolio and use the money as a premium for an annuity contract that will pay them a certain amount every month for a given number of years. Some contracts will even make payments until the annuitant dies.
Though there are different types of annuities (immediate, deferred, fixed, variable, etc.), they are all designed to reduce risk and guarantee income.
Endowment plans are insurance contracts that provide both life insurance coverage and a savings plan.
When an investor purchases an endowment plan, the insurer will pay the sum assured and any accumulated bonuses when the plan matures. However, if the investor dies before maturity, the insurer will pay the sum assured and bonuses to the beneficiary.
Money in an endowment plan is invested and earns an interest rate that is fixed at the time of the purchase.
Premium payments for endowment plans are flexible. Investors can make a lump sum payment or they can make a series of payments monthly, quarterly, biannually, or annually.
Endowment policies also have riders (extra coverage for a fee) like critical illness cover, disability cover, accidental death cover, and hospital cash benefit.
We said above that investing in individual stocks often requires expertise since you need to know how to select the right stocks.
Not many individuals have the time to acquire such expertise. Mutual funds provide an alternative.
A mutual fund pools money from various retail investors and invests it in stocks, bonds, and other fixed-income securities. These funds are managed by experts who have the requisite knowledge to select securities that will maximize the returns of investors.
In return, they charge a certain percentage of assets under management for their management and administration expenses.
As a retail investor, you can buy shares in a mutual fund. In contrast to buying stocks, for example, a share in a mutual fund represents exposure to all the assets that the fund holds.
For example, if a stock (equity) mutual fund has 50 stocks, then purchasing a share in that fund means you have exposure to all 50 underlying stocks.
You can make money from a mutual fund in two ways.
First, mutual funds distribute income on underlying securities to fund holders at least once a year. That is, all the income earned on underlying securities must be distributed to fund holders based on the number of shares they have in the fund.
Secondly, you can sell your shares in the mutual fund for capital gain. Unlike stocks, mutual fund shares cannot be sold during trading hours. You will have to wait till the end of trading hours (10 am – 2:44 pm in the UAE) to sell your shares at the prevailing NAV (net asset value, the value of each share of a mutual fund).
With mutual funds, diversification is easier for the retail investor. Instead of looking for money to buy 10 stocks, you can buy a single mutual fund and gain exposure to 50 stocks.
Some mutual funds even combine stocks and bonds, thereby providing even more diversification.
ETFs are similar to mutual funds in that they are also a basket of securities. When you buy an ETF, you are exposed to all the underlying securities it contains.
Yet, there are significant differences between ETFs and mutual funds:
First, ETFs can be purchased and sold on the stock exchange market during trading hours.
Second, most ETFs are passively managed. That is, instead of trying to outperform the market, an ETF tracks the performance of a market index.
For example, an ETF can mirror the FTSE ADX General Index, an index that contains all the stocks traded on the Abu Dhabi Securities Exchange. Because it is mirroring an index, its performance closely follows (approximates) that of the index.
Real estate is one of the best investment options in the UAE for nationals and expats to consider.
UAE nationals (and citizens of GCC countries) can have full ownership of any property they buy in the UAE.
Expats can only enjoy full ownership in the free zones. Outside of the free zone, they can only own the property erected on the land for 50-99 years and not the land itself.
Yet, real estate is one of the best investments in the UAE for expats since they can use it to get the UAE Golden Visa.
There are three ways to make money from real estate in the UAE.
First, you can become a real estate flipper. This involves buying properties in good locations, renovating and improving them, then selling them for profit.
Second, you can become a real estate developer. As a developer, you will purchase lands and then erect residential or commercial properties that you can sell for a profit.
Third, you can decide to buy or develop a property and then rent it out for monthly, quarterly, or annual income.
Not everyone has the capital to invest in the real estate market. REITs were developed to cater to investors who want to earn from the real estate market but don’t have the capital (or time) to commit to development or flipping.
REITs are the stocks of companies that invest in the real estate market either by buying properties or providing mortgage financing to those buying them. Those who do the former are called equity REITs and those who do the latter are called mortgage REITs. There are also hybrid REITs who do both.
You can earn money from REITs in two ways.
First, you can earn income through dividends. Investors who want to earn regular income often prefer REITs since they are required to distribute at least 90% of their income to investors.
Second, you can earn capital gains by selling your REITs.
Instead of buying individual REITs, you can also purchase REITs ETFs; they combine many REITs into a basket that tracks the performance of a market index.
The GCC (especially the UAE) has been a thriving market for REITs even as they continue to struggle in the European market. As far back as 2018, the UAE was fourth in the list of countries with the highest dividend yield on REITs provided by PwC, an accounting firm.
Source: DBS Bank
Many investors have considered gold to be a haven investment. It has gained popularity as a store of value because its supply is limited and cannot be arbitrarily increased (unlike fiat currencies).
Once an asset is a store of value, it can be an investment asset (we will see this again with cryptocurrency). It is no surprise then that the price of gold has been on an uptrend since the 1970s. According to Statista, the data reporting platform, gold has returned an average of 7.98% between 1971 and 2004.
Furthermore, gold has proved its value as a haven during recessions, deflations, and economic downturns. While stocks struggle during these times, gold has held its head up high.
Gold is also seen as an inflation hedge, though its performance in this regard has been mixed.
For all these reasons, investors have traditionally embraced gold as a way to diversify their portfolios and reduce risk and volatility.
You can buy gold in five different ways
Cryptocurrencies are decentralised digital currencies that do not require the control of a central governing authority.
Though Bitcoin started as an alternative to fiat currency, cryptocurrencies have since then become an asset class, providing new ways to invest money. There are 9,538 cryptocurrencies across the globe with a combined market cap of $2.69 trillion.
Some cryptocurrencies like Bitcoin are mainly alternative payment methods while some like Ethereum support blockchain networks where decentralised applications are created. There are also stablecoins pegged to the value of another asset (usually USD) and meme coins that become popular on social media.
Bitcoin’s limited supply means no one can increase its supply (thus reducing its value). Since it can be a store of value (unlike fiat currencies), many have seen it as a digital gold that can be used to diversify a portfolio, though its ability to play this role is still uncertain.
You can make money from cryptocurrencies by staking them to earn regular income or by earning capital gains when you sell them.
While most people trade cryptos for short-term profits, many invest in the long-term potential of especially innovative cryptos by buying and holding them for a long time.
Whatever your strategy, you can invest in crypto in the UAE through the Sarwa Crypto platform.
Venture capital firms (VCs) have made money over the years identifying startups with great potential and investing in them. Traditionally, this investment opportunity has been limited to high-net-worth individuals (HNWI) who have significant capital to invest.
However, the fintech revolution has democratised startup investment, with many platforms now allowing retail and small-money investors to also participate. With your 100 US dollars or 1,000 dirham, you can get equity in a startup.
If you have more money than the average retail investor, you can also reach out to startups independently and inquire about investment opportunities. You can find interesting startups at Dubai Startup Hub, GITEX Future Stars, and UAE Demo Day.
The UAE government has been doing a lot to provide an enabling environment for entrepreneurs to thrive as it seeks to diversify the economy.
If you have the right ideas, you can consider starting your business. You can start at a small scale while keeping your job and then wait for opportunities to scale up.
Hospitality and tourism, logistics and transport, real estate, construction, banking and finance, retail, healthcare, eCommerce, consulting, and oil and gas are the top industries that will drive growth in 2024 and beyond, according to Middle East Economy, a business magazine.
Structured products are investment assets whose performance is linked to an underlying asset, market index, commodity, currency, etc.
They typically include options which are financial derivatives that give buyers the right to buy or sell an underlying asset at a preagreed price and on a preagreed date.
Given that derivatives are considered appropriate only for experienced and knowledgeable investors, financial institutions use structured products to give retail investors access to derivatives.
They do this by combining some derivatives (usually options) with fixed-income securities. For structured deposits, the fixed-income component guarantees the recovery of your principal while the derivative component can bring in some returns (or not).
Some structured products (called structured notes) do not offer principal protection. In this case, if things go well, investors can earn higher returns but if things don’t go well, they can lose their principal.
If you are putting money away for a short-term expense, choose an account where you can easily access your money at no extra cost.
Savings accounts have typically served this role. Though they pay little interest, you can access your funds anytime you want (though some may limit the number of withdrawals per month).
They also come in handy when you are still unsure how you want to invest your money. Perhaps you are still considering creating a solid investment plan in the UAE that will maximise your returns while minimising your risk.
Instead of keeping the money in a checking account where it yields no interest, you can transfer it to a savings account and earn some interest.
Many financial institutions also offer high-yield savings accounts that will provide even higher returns than a traditional savings account (though at the cost of stricter withdrawal limits or minimum balance requirements).
However, with Sarwa Save, you can enjoy high interest (3%), withdraw your money at any time (no lock-up period), and start saving without any minimum balance requirement. The freedom to withdraw at any time also makes Sarwa Save appropriate for emergency funds.
As we have seen, it is hard to pin down one asset as the best investment in the UAE. Some assets are appropriate for preserving capital while some are best for growing it.
The best way to invest money in the UAE is to combine these various UAE investment opportunities in a diversified investment portfolio so you don’t put all your eggs into one basket.
Evaluate your investment goals, risk tolerance, and time horizon, and create a portfolio that will get you to your desired destination.
[Are you ready to start building your diversified portfolio of the best investment options in the UAE? Sign up for Sarwa to invest in stocks, ETFs, REITs, crypto, and high-yield savings accounts, or schedule a free call to talk with a Sarwa wealth advisor.]
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