Building an investment portfolio can be as simple or as complicated as you want it to be, it is entirely up to you.
Many investment advisers make it seem unnecessarily complex, because they have a vested interest in doing so.
By mystifying the process of investing for a long-term goal such as retirement, it is easier to sell costly and expensive investment schemes, such as notorious 25-year offshore insurance savings plans.
If you keep things simple instead, you can build a broad and balanced spread of investments yourself, at minimum cost.
An increasingly popular way to build a DIY portfolio is to invest in low-cost exchange traded funds (ETFs), a type of tracker fund that will follow the fortunes of pretty much any market, region, asset or sector you choose.
ETFs are traded quickly and easily like stocks and shares, with no upfront costs aside from your stockbroker's dealing charges, and annual fees typically ranging from as little as 0.05 per cent to 0.5 per cent.
Top ETF managers include Vanguard, BlackRock's iShares, Deutsche Bank AWM X-trackers, Invesco PowerShares and State Street Global Advisors' SPDR.
UAE residents can deal by using online trading services offered by AES International, Interactive Brokers, Saxo Bank, Swissquote and TD Direct Investing, or the stockbroker they used in their home country.
Sam Instone, the managing director of AES International, says ETFs are "passive" funds, because they do nothing except track their chosen index. "By contrast an active fund manager will try to outperform at index using their knowledge and experience, and charge fees of up to 2 per cent a year."
However, most active managers underachieve, he says. "Not only are they more expensive, but extensive evidence suggests active fund managers fail to consistently beat the index."
Mr Instone says that more than 93 per cent of US active funds underperformed the benchmark S&P 500 index of top US stocks over the last year, according to the latest Spiva US Scorecard.
"Over 10 years, an incredible 99 per cent trailed."
Tempted to build your own ETF portfolio but don't know where to start? Here are the building blocks you need.
Fees add up
With almost zero advisory fees and fund charges, you keep nearly all of the investment growth yourself. Over the longer run the benefits are huge.
Say you invest US$1,000 a month in an insurance plan with upfront charges and advisory fees totalling 5 per cent, plus trailing fund and advice charges of 2 per cent every year.
After 20 years, you would have invested a total of $240,000, which would have grown to $315,512, assuming annual growth of 5 per cent a year before costs.
If you invest in an ETF charging 0.2 per cent instead, your $240,000 would be worth $407,155, giving you $91,643 more.
Over 30 years the difference is even more pronounced. You would have invested $360,000, which would be worth $558,631 in the higher charging plan, but an incredible $807,399 with low-cost ETFs, again, assuming the same growth rates. That is an extra $248,768, because all your savings have grown and compounded over the years.
Word to the wise
Not everybody has the confidence and experience to build their own portfolio, but they could do it simply and cheaply by following this suggestion from Steve Cronin, the founder of Wise (wiseuae.com), a non-profit community designed to help UAE residents invest their wealth and avoid rip-offs.
"When it comes to investing in ETFs, less really is more. Simply find the most diversified global fund that you can, at the cheapest possible price, put your money into it and leave it there year after year."
His suggested portfolio is the height of simplicity: for stocks and shares he tips Vanguard FTSE All-World ETF USD, which can be found under the stock market ticker "VWRD", and for exposure to government bonds he recommends the iShares $ Treasury Bond 1-3yr ETF, listed under "CSBGU3".
Vanguard is the world's leading low-cost tracker provider with a total of $4 trillion in assets under management. This $49 billion fund invests in a spread of nearly 3,000 stocks with top holdings including Apple, Microsoft, Johnson & Johnson, Facebook, ExxonMobil and the Google owner Alphabet, and ongoing charges totalling just 0.25 per cent a year.
Just over half the fund is invested in the US with exposure to Japan, the UK, France, Germany, Switzerland, Canada, China, Australia, Korea and many other countries. Its benchmark is the FTSE All-World Index.
Mr Cronin advises putting 80 per cent of your portfolio funds in this ETF and the remaining 20 per cent into the iShares fund, which tracks the performance of an index composed of government bonds issued by the US Treasury and denominated in dollars, with ongoing annual charges of just 0.2 per cent.
Government bonds are lower risk, lower return than stocks and shares, but give you some protection against a market crash. "Splitting your money 80/20 is a reasonable mix if you are under 50 and do not need your savings for at least 10 years. You may want to increase bond exposure as you get older," Mr Cronin adds.
Experienced investors can build a more sophisticated portfolio of ETFs tracking indices across the US, UK, Europe and Japan, emerging and frontier markets, sectors such as property, technology and smaller companies, or even individual commodities such as oil, gold, corn and cocoa. In fact pretty much every asset you have heard of, and many you haven't.
You can even use ETFs to hedge against currency risk, which could be useful for internationally mobile investors, or against a stock market drop.
Oliver Smith, a portfolio manager at the online trading platform IG, which recently opened offices in Dubai, has drawn up a shortlist of "portfolio building blocks" (see chart) that investors should consider as long-term portfolio holdings.
"In the right weights they give investors almost all the diversification they need."
He also names Vanguard FTSE All-World as his top pick, along with other global funds SPDR MSCI Acwi, iShares Core MSCI World and HSBC MSCI World (as you can see, ETFs do not always have the catchiest of names).
The list also includes ETFs tracking the US, UK, Europe, Asia (excluding Japan), Japan and emerging markets. It also includes a spread of ETFs tracking government bonds, corporate bonds, inflation-linked bonds, high-yield debt and emerging markets debt.
Two specialist funds also make his building blocks list: iShares Physical Gold; and a property fund, HSBC FTSE Epra/Nareit Developed.
Mr Smith says more experienced investors can also use ETFs for income and picks out iShares Asia Pacific Dividend, iShares UK Dividend, SPDR S&P US Dividend Aristocrats and Vanguard FTSE All-World High Dividend.
"These are not necessarily the highest yielding in the marketplace, but do have a good degree of diversification."
Moving on up
Laith Khalaf, a senior analyst at UK wealth adviser Hargreaves Lansdown, says that once you have built your ETF core portfolio, you can then add some carefully chosen actively managed funds targeting specialist areas. "This is often known as a core and explore investment approach."
The popularity of ETFs has had the beneficial effect of driving down mutual fund charges, as active managers battle to compete. "Many active funds now have no initial charges and annual fees totalling 0.75 per cent a year. However, some remain expensive, so pay close attention to the price tag."
Mr Khalaf says ETFs and other trackers make particular sense when investing in large well-researched markets such as the US S&P 500, the UK's FTSE 100 and government bonds, where it is very difficult for managers to add value and beat the market.
"In specialist sectors, a handful of select fund managers can still prove their worth."