The most popular use for ‘extra’ money in the UAE is to invest it in property, according to research from wealth manager Quilter.
When 1,000 respondents were asked in November what they would do if they had extra money to save or invest, 37% said they would invest it in a property.
This was closely followed by 35% saying they would put it in a cash savings account with a bank.
Another 30% said they would help other members of their families.
Long or short-term goals
In times of economic uncertainty, the number of people who save and put cash away for an emergency increases.
However, with interest rates plummeting, having too much in cash can be harmful to your finances and may mean the money is not working as hard as it could, says Quilter.
The general rule is to have three to six months’ worth of living expenses saved up in an easily accessible account.
When that buffer in place, investing has real power to help people reach their financial goals in a shorter period of time.
However, just 19% of respondents would invest the money in stocks and shares; with the same proportion saying they would invest in other stock market-based investments, such as funds and bonds.
The least popular answer (5%) was to invest the money in art, antiques or cars followed by just 10% saying they would see a financial adviser and only 14% would use the money for a holiday.
Make a plan and stick to it
Brendan Dolan, global distribution director of Quilter International says: “For a long time investing in property has been seen as a safe bet so it is no surprise that lots of people would choose to invest in this market. However, this research reveals quite how many people would just leave any additional savings in cash.
“In broad terms if you have a short-term goal then the money is best kept in cash as the stock market might go up or down and you may make a loss. However, for medium- and longer-term goals investing is powerful when appropriate and this research shows that few people see its merits.
“It is always sensible to build up an emergency cash fund to help get through tricky times such as this pandemic. However, the important thing to remember is that sitting on too much cash is not always the safe bet. Inflation eats away at the value of your money and low interest rates means you may not be getting that much from your account.
“Investing can be nerve-wracking but just remember to make a plan and stick to it. If you need support, then a financial adviser is well placed to help you think clearly about whether you should be investing and in what.”
Changing value
Mark Leale, head of Quilter Cheviot’s Dubai branch office, adds: “Nobel Prize laureate Harry Markowitz is famous for saying ‘diversification is the only free lunch’.
“Put simply, if you are only investing in real estate and cash, you are heavily reliant on those two asset classes being the answer to all of your investment needs. The real estate, will hopefully provide a positive income net of costs and taxes, plus also increase in value but it is an illiquid asset, meaning that it is hard to fully or partially turn into cash.
“Conversely, cash is highly liquid but will almost certainly decline in value when taking into account the effect of inflation.
“Cash and property have their place in most people’s financial plans but so do a wider range of investments, including equities and bonds.
“Take time to review your circumstances with your financial adviser or portfolio manager, talk through and understand the relationship of risk and reward. Time horizon and your ability to tolerate losses all factor in building your risk profile.
“With this blueprint for your personal requirements an appropriate investment strategy can be implemented. Meaningful ongoing reviews will allow you and your adviser to assess the success of the strategy against this profile.”
