Seven ways to save and invest your bonus in 2022

Finance experts suggest an understanding of what you want to achieve with the money, the timeline to work with and your risk preference before investing

Historically, the banking and financial services industries and professional services companies have awarded lucrative bonuses. Photo: The National

Related UAE salary guide 2022: how much should you be earning?

Companies in the UAE are increasingly paying out bonuses to employees in the first quarter of this year as the job market and economy improve on the back of Expo 2020 Dubai and the government’s positive handling of the Covid-19 pandemic.

About 74 per cent of UAE businesses surveyed by recruitment agency Cooper Fitch in December last year said they plan to pay bonuses in 2022, with 46 per cent of those paying one to two months of gross salary and 21 per cent paying three to five months' worth. Only 26 per cent of businesses said they were not going to pay bonuses next year.

“While bonuses are not industry specific, we are seeing the correlation between sectors challenged by hard-to-fill roles and retention issues, such as technology-based organisations and start-ups, currently leading the way in paying more generous bonuses,” says Deepa Sud, chief executive of Plum Jobs, an executive search consultancy in Dubai.

Sectors challenged by hard-to-fill roles and retention issues such as technology-based organisations and start-ups are currently leading the way in paying more generous bonuses

Deepa Sud,
chief executive, Plum Jobs

“Many SMEs and SMBs who have performed well financially have rewarded their employees who helped them weather the pandemic and rebuild their business.”

Historically, the banking and financial services industries and professional services companies have always awarded lucrative bonuses based on outstanding business performance, she says.

“As management consultancy companies continue to generate healthy revenue across many sectors, we expect their bonuses to be high,” Ms Sud says.

Although bonuses were not commonplace in 2021 because most organisations were strapped for cash and endured unforeseen expenses such as gratuity payments, the healthcare sector by far was dominant in paying bonuses in 2021 in recognition of the contribution public hospital frontline, emergency and allied teams made during the pandemic, she says.

We asked personal finance experts to suggest their top tips on how employees can save and invest their bonus money.

Take a balanced approach to investing your bonus

Investing, rather than simply saving, is one of the best and most rewarding ways to grow your bonus, says Ramzi Khleif, general manager of digital wealth manager StashAway Mena. Although there is no one-size-fits-all approach to investing your bonus, he says.

“Putting a lump sum such as a bonus into a savings account is sensible, but the savvier approach is for individuals to invest this money and ultimately benefit from a clear return on that investment,” he says.

First, people must have an understanding of what they want to achieve with their money: are they saving to build wealth or is there a specific goal? They must also know what timeline they are working with. For example, is this investment driven by a short or long-term aim, Mr Khleif says.

It is also important to understand your risk preferences before choosing where to invest your bonus.

“A high-risk investment is likely to see swings in the market, which will work themselves out over time, so is better fitted to a long-term investment. If your goal is short-term financial reward, it makes more sense to stick with a conservative investment, where your money is less likely to be subject to market fluctuations,” Mr Khleif says.

Putting a lump sum such as a bonus into a savings account is sensible, but the savvier approach is for individuals to invest this money and ultimately benefit from a clear return on that investment

Ramzi Khleif,
general manager, StashAway Mena

Pay down debt

The looming spectre of high-interest debt is not pleasant and one that can have a serious effect on overall wealth, says Rupert Connor, partner at Abacus Financial Consultants. Bonus money can be a good way to make a serious dent in the balance of high-interest debt or pay it off completely, he says.

“If credit-card interest is about 20 per cent, then it doesn’t really make any sense to invest money into the stock market and hope to outpace the 20 per cent. Get the debt paid off and then try not to fall into the same trap again,” Mr Connor says.

Invest in ETFs and dividend stocks

Exchange-traded funds (ETFs) are similar to mutual funds in that they include several securities, says Vijay Valecha, chief investment officer, Century Financial. But they trade on exchanges like stocks do, so the price can change throughout the day, while mutual funds are priced at the end of the trading day.

“Some ETFs mimic market indexes, which make them a good choice for investors who want to make market returns while safeguarding their initial investments,” Mr Valecha says. “Investors can buy an ETF that includes, essentially, all the stocks included in the S&P 500 index, for example, or in the Russel 2000 index.”

Meanwhile, with a dividend stock, not only can investors gain on their investment through long-term market appreciation, they can also earn cash in the short term because dividends are usually paid out to shareholders on a quarterly basis, Mr Valecha says.

Save for an emergency fund

It is imperative, as a minimum, to keep three to six months’ worth of expenses in an emergency fund, Mr Connor says.

“This can provide peace of mind and a back-up plan for anything unexpected that may come our way throughout the year.”

Use part of your bonus to add to this fund and ensure you are ready for rainy days, says Sophia Bhatti, a partner at financial advisers Hoxton Capital Management.

Cryptocurrency and bonds

Cryptocurrencies are good for risk-seeking investors in exchange for the potential of much higher returns, financial experts say.

However, is essential that investors do their homework and invest only a small proportion of their bonus in this asset class, Mr Valecha says.

“While they can buy cryptocurrencies on an exchange, the better bet may be to invest in a diversified crypto ETF,” he suggests.

People can also invest their bonus in bonds. With future interest rate increases being discussed, bonds might become more attractive in 2022, Mr Valecha says.

“Bonds provide a capital guarantee and a fixed level of guaranteed income,” Ms Bhatti says. “You can invest in a bond for anything between one to five years, in some cases longer depending on the bond provider and terms. On average, a bond can earn a minimum of 5 per cent returns per annum.”

Save towards retirement or children’s education

Not only should one be saving a significant proportion of monthly income for a formal pension structure, people should also top it up with bonus money and surplus cash throughout the year, Mr Connor says.

“If one wants a level of comfort in retirement, the commitment has to be there to save. Contributing a proportion of the bonus towards retirement can only be described as being responsible,” he says.

Review your future goals, such as supporting your children for school or university, and add bonus money to this corpus, Ms Bhatti says.

Use part of your bonus to add to the emergency fund and ensure you are ready for rainy days

Sophia Bhatti,
partner, Hoxton Capital Management.

Invest in commodities

Commodities are a broad category of investments that include agricultural products, precious metals, oil and natural gas, and raw materials such as lumber and iron, among others, Mr Valecha says.

“The price of a commodity is usually dependent on supply and demand. As a result, they’re typically more profitable during a supply chain crunch, such as now,” he says.

“But they’re still risky – a slight change in geopolitical situations, natural disasters and droughts can all drastically impact your profits.”

Alternatively, investors could consider investing in commodity-focused ETFs and mutual funds over commodities contracts, Mr Valecha says.