It’s easier to spend money than save it and, definitely far more trickier, to make your money work for you.
And, that’s probably what sets apart the rich from the not-so rich.
We are hoping to bridge that gap with the help of Rickson D'Souza, Director of Wealth Management at Pinnacle, a UAE-based insurance broker and wealth management consultancy, who reveals five top investment pots that every household must look at.
“The first rule of investment is to diversify your funds,” explains Rickson. “So, don’t go about putting away all your money in one pot.”
The first rule of thumb is to stack away cash for an emergency, which will ensure that there’s a back-up plan in place during any unplanned eventualities.
“We recommend that everyone should have at least six months of emergency expenses stashed away in your bank account.”
The question then focuses on whether the entire amount remains in a dirham account, which is governed by the Shariah law and could possibly lead to a lot of complications if the key account holder doesn’t have a will in place to list out his or her beneficiaries.
“So, it’s important to keep some liquidity in a dirham account but the exposure should be bare minimum, with the other alternative being off-shore bank accounts.
“While the interest rates will never be high, the purpose behind that is security and safety.” It might not earn you any returns, but that’s not what an emergency cash stash is intended on doing.
“It’s for emergencies. If something goes wrong, you need liquidity.”
This is a market that every individual must have exposure to and could vary for different income groups.
“While tackling property, you need to have a lump-sum of cash that can pay the majority, at least, if not all of the purchase price of the property.
“And this would mean that you would need to plan it a couple of years in advance to build that cash portfolio.”
The reason for this, Rickson elaborates, is because lending isn’t cheap now, “and it also leaves you free of any debt, predominantly or mostly”.
He, however, advises that emotion be taken out of any property investments.
“A lot of people say they will invest in a property that they want to retire in.
“But, if the purchasing happens now, say when you are 32-years-old and your retirement will be at 65, then it’s safe to say that the building would’ve gone through its share of wear-and-tear.
“And, by then, you probably have a lot of other places where you probably want to live in, instead.”
So, it’s about looking at property not for the purpose of staying in but purely for investment.
“This way you will invest for the best returns. You’ll buy a one-bedroom or two-bedroom apartment, instead of a five-bedroom, because there’s a bigger demand for that and it’s easier to rent out.
“And, if the need arises it’s an easy sell.”
And, India tops the list of locations to buy property because “with a 1.2 billion population, there’s always going to be massive demand for property.
“And there is not, at the moment, an over-supply. You should buy in any country where you are allowed to purchase as a foreigner and where the return on investment is good”.
Also, property investments should happen when you have your feet fairly on the ground.
“You need to be concerned about how your property is faring and whether you have the time from your daily work to go down to sort out tenant or other related issues.
“If not, you’d have to hire the service of a professional in that area.”
With Indian bank accounts offering a staggering 9 per cent for NRI fixed deposits, this is a great savings option. “You must invest in NRI/NRE accounts, as this would get you good returns and covers the over-shore angle as well.”
Such investments are safe and guaranteed.
“Whether the market is up or down, it won’t make a drastic impact on your principle. You are safe.”
However, it is advisable to send the money to India in rupee accounts only if you do not wish to repatriate it back on maturity as rupee may lose a part of its value against the dirham.
Equity investments in mutual funds
According to Rickson, every individual must be exposed to the global market, but this is not a short-term investment with the principle amount being locked away for 10 to 15 years.
“You would need to leave the money there for a good amount of time. As long as you can constantly monitor it, and use the opportunities to your benefit, there’s a lot of money to be made out there.”
And, for the amateur market trekkers there’s “regular savings or SIPs (systematic investment plans) that allow you to invest in a basket of funds monthly. So, over a period of 20-25 years, the markets will go through four or five cycles of ups and downs, but you should continue to buy, giving you a profit over a longer period of time”.
While investors who choose to bail out when the markets are doing badly end up losing money, conversely, it is also the best time to invest in the market since shares come at cheap rates.
"That’s exactly what you do with property, and it’s not different for mutual funds either,” says Rickson.
Stocks and shares
The fifth and final pot is reserved only for the super disciplined, who have enough money and time at hand.
“With stocks and shares what you are saying is you are the expert. That you are going to look at it every day.”
But, if you have a regular eight-hour job and come home to manage family, then you don’t invest here.
“That’s when you leave it to the experts. Most mutual fund companies have a fund manager, who will guide you about which stocks and shares to buy and sell. But you must understand what you are investing in.”