Investing is a way you can make your assets work for you. The idea is using capital you currently have today in order to bring in a greater return in the future. Investors will only buy into something they truly believer will increase its value over time.
However, it's important to be aware that there are never guarantees. Just as the value of an investment may increase, there is also the potential its value could decrease, essentially losing you capital.
Nowadays, there are many different forms of investment. For this reason, the thought of starting to invest can overwhelm many. This guide will walk you through the most common types of investments in the UAE. Everything from stocks to crypto, we'll also go into detail on the benefits of adding each to your investment portfolio.
Stocks, which you may have also heard called shares or even equities, is probably the most well-known form of investing.
Simply put, buying stocks are essentially buying part ownership in a specific publicly-traded company e.g. Facebook.
How it works: The investor makes money with stocks when after they purchase, the stock price increases. In this case, they resell the stocks for profit. However, the investor takes the risk that the stocks could also go down.
Bonds are another commonly used investment method. Bonds are used by governments or companies to raise money for specific projects by borrowing from investors. Like with any loan, the receiver makes a promise to pay the investor back, with interest.
How it works: The investor makes their profit by getting interest payments. When the determined time has passed for the payment i.e. the bond matures, the investor gets their principal back.
It's important to note the return is much lower than that of shares. Generally the safer an investment, the lower the return rate will be and as bonds are considered to be a lower risk, the return is low.
While bonds are considered a safer investment, there is still some risk associated, for example, the company could go bust and not be capable of meeting repayments.
The Dubai real estate scene is known for offering some of the highest rental yields in the world. In the UAE, investing in property is one of the best ways to grow your wealth, particularly if you're interested in investing in Dubai. This is for many reasons such as it's high rental yields, between 5-9%. But also for having, reasonable property prices and great tax conditions.
However, some locations are better known for high returns than others. For example Dubai Silicon Oasis (DSO), Meydan and DAMAC Hills are known for offering high returns.
When investing in property you really want to achieve the best possible ROI. To do so, it's important that you do your research prior to investing. Here are some of the factors you will want to consider that may influence your ROI:
The ability to invest in cryptocurrencies is still a relatively new option in the UAE. Nowadays, pretty much everyone has heard about Bitcoin and some of the other famous cryptos such as Ethereum.
How it works: These are digital currencies that have no tangible presence or government backing. Investors make money through cryptocurrency exchanges. Just like bonds and stocks, investors look to purchase when the value is low in the hopes of making a big return.
Cryptocurrencies are known for being extremely volatile in nature. Those who got in at the earn days of Bitcoin, made fortunes during its peak. But as the volatility could make you make you high returns, it could also be the cause of major losses.
A mutual fund is a pool of multiple investors’ money that is invested widely. This pool can either be actively or passively managed.
An actively managed fund is looked after professionally by a fund manager. The fund manager is responsible for choosing which securities to invest in. They generally do so by selecting options that are likely to outperform the designated market index.
A passively managed fund, or an index fund, is a fund whose investment securities are automatically selected by tracking a major market index and mimicking it, investments are not chosen by a portfolio manager.
With mutual funds, the risk is usually quite low as the investments and thus the risks, are diversified.
How it works: Similar to stocks & bonds, by investing in mutual funds you could increase your profit when the investments go up.