How UAE residents can invest with minimal funds

Whether you start with Dh100 or Dh1,000, investing can help your money grow over time

The habit of paying yourself first or saving before spending will help reach your goals faster, experts say. Antonie Robertson / The National

Money, side hustles and investments have become major topics of conversation on social media platforms, with an increasing number of financial influencers, or “finfluencers”, talking about how they made their first million dollars before 30.

However, there is no need for any fear of missing out on this trend if you are just starting out. Stock market experts over the years concur that investing is a long-term game and now, with digital tools and investment platforms, you can start investing with amounts as low as Dh100 ($27).

Understanding the ‘why’

For expatriates in the UAE who may not have pension plans or inheritance to fall back on, having a plan for retirement is critical.

A 2024 survey conducted by YouGov for Zurich International Life found that seven in 10 residents in the UAE want to retire here but only 4 per cent have invested in a retirement savings plan. You could also chart out short-term goals such as buying a car or a home.

To put the future in perspective, if you need Dh15,000 for your basic expenses in the UAE today, you will need more than Dh36,000 for those same expenses in 2054, assuming an inflation rate of 3 per cent per annum for the next 30 years.

The first step: Save and learn

Investing can wait until you have an emergency fund. Steve Cronin, a financial independence coach and founder of DeadSimpleSaving.com, says: “Build up a cash buffer the size of six months' expenses for emergencies or job loss.”

This would mean looking at your expenses over the last six months to understand your essential expenses, which include rent/mortgage, utilities, food and fixed debt payments. Your fund should cover your essentials fully along with a small buffer for unexpected expenses.

“While you are doing that, invest a small amount into a global stock ETF [exchange-traded fund] via a brokerage to learn how it works. Educate yourself on sensible ETF investing via a personal finance Facebook group like SimplyFI or a book like Millionaire Expat by Andrew Hallam,” Mr Cronin says.

David Rouse, a UK resident in Dubai documenting his journey to financial freedom, also suggests first educating yourself using free or low-cost resources.

“I highly recommend joining the Facebook group SimplyFI – Index Investing & Financial Independence. It’s run by a group of expat personal finance enthusiasts who have put together a free ‘Getting Started Guide’ that provides a step-by-step approach to beginning your journey to financial independence,” he says.

Paying off debt

While it may not be realistic to expect no debt when starting your financial journey, it would be best to get started on paying down the highest debt that is not mortgage.

Pay off credit card debt or cash advances first as these usually have extremely high fees or interest rates, and then pay off all outstanding expenses on your card every month.

For long-term personal loans, work the monthly payment in with your essential expenses fund to account for it in case of an emergency.

How much should I keep aside?

You will have to pay yourself first, as veteran investor Warren Buffett said. While the first two steps will help you understand your financial health, the habit of saving before spending is key to the process.

“No matter what your income is, aim to save at least 10 per cent to 20 per cent of your monthly earnings,” says Raji Kaippallil, a UK-based money expert and founder of educational platform Finance with Raji.

“It's easy to blame a low income or high living costs for not saving enough. However, the cost of living is unlikely to decrease and will probably continue to rise. If you don't learn to save a portion of your income now, you'll struggle in the future, even with a higher income.”

Where to put your first Dh100

ETFs are funds that follow the performance of a group of stocks, bonds or industries, and are the best way to invest and forget in the long term.

Instead of investing in only risky equity or low-profit debt, you can invest in a diverse allocation to spread out risk and increase chances of growth.

A popular index is the S&P 500, which follows the performance of the 500 largest listed companies in the US. Similarly, Nasdaq 100 is an index that tracks the performance of the 100 largest non-financial firms listed on that exchange with more than 60 per cent allocation to large tech stocks.

Mr Cronin and Ms Kaippallil suggest choosing a global index such as the FTSE All-World index that covers more than 3,600 companies in 51 countries.

Mr Cronin believes that people can invest in ETFs themselves using a broker with a bit of confidence and support.

“If that sounds too scary, then use a robo-adviser,” he adds.

Robo-advisers are platforms that can automate investments based on goals and risk exposure for a management fee.

How much will my money grow?

Mr Cronin says he uses 7 per cent for his projections, adding: “Long-term studies going back 100 years suggest a return of 7 per cent to 10 per cent per year as a long-term average total return in the stock market.”

Additionally, increasing the monthly amounts you invest by 5 per cent to 10 per cent yearly can add that much more to your gains over time without adding on a lot of financial pressure.

In a real example of such investments, Mr Rouse says: “The vast majority of my funds go into an ETF called VWRA, which tracks the global stock market. Historical returns are around 8 per cent, which might not sound earth-shattering, but never underestimate the power of compound interest over long periods of time.”

Mr Rouse, 41, hopes to attain financial freedom by 50 and started investing in 2019 during the pandemic.

He uses the 4 per cent rule to plan retirement where you have a nest egg from which you can withdraw 4 per cent annually to cover all living expenses.

“So, if you have $1 million invested, you can withdraw $40,000 a year. To maintain my lifestyle in retirement, I’ll need a lot more than $1 million. But I’m on my way, and with a clear strategy, I’m confident that I’ll be in a good place when I retire. Hopefully, on a beach somewhere!”

Home country investments

Several residents might consider saving money and investing in their home country instead.

“If you plan to retire in your home country and utilise your assets there, investing locally might make sense. However, be mindful of the high currency risk and potential local taxes that could erode your gains,” Ms Kaippallil says.

“Alternatively, you could invest in assets such as stocks from your home country while residing in the UAE by choosing funds denominated in a stronger currency.”

The National is not promoting any products or firms. This is not to be considered financial advice. Past growth is not indicative of future performance and all stock market investments are subject to risks.