Cash is not always best for high returns

This week's situation comes from a British advertising executive in Dubai. He is 40 years old with a monthly salary of Dh38,000 and monthly outgoings of Dh15,000. He owns an apartment in the UK with mortgage repayments being covered by rent and £30,000 (Dh177,000) savings as cash in the bank plus a stalled UK-based pension scheme.

"I realise my cash in the UK bank is being devalued by inflation and in terms of risk/ return levels. I would like to invest it in order to receive seven to 10 per cent return each year. I would also like to add to this on a monthly basis to act as my pension, which has been stalled in the UK since moving here three years ago. What are my options? Also, how quickly could I access the cash with each option? I was considering transferring the money to the UAE and investing in UAE Bonds but the exchange rate is relatively poor now, so should I wait until I get more dirhams for the pound?"

Your circumstances throw up many opportunities and points to be covered. As you have no dependants, protection for death is not such a major issue as long as your debts are covered by life cover. However, if you cannot work due to a critical illness, you may consider taking out a critical illness plan that will pay a lump sum should the situation occur.

With regard to your cash in the bank in the UK, history shows us that over time inflation erodes value. Inflation in the UK is very low at the moment but this will rise as the UK exits recession and the interest paid on your savings will be relatively small. You should keep some cash in the bank to cover emergencies. However, if you require growth of seven to 10 per cent each year, cash will not generate this so you should look at a broad portfolio of investments.

You have a couple of options regarding your stalled UK pension. If you intend never to return to the UK, you may wish to move the pension into a Qualifying Recognised Overseas Pension Scheme, which is largely removed from UK taxation. If you are likely to return to the UK shortly, you may wish to consider transferring your pension to a Self-Invested Personal Pension, which although still considered a UK pension, will allow you and your financial advisor the opportunity to manage your pension investments as you so wish.

With your surplus cash each month you have expressed a wish to commence a regular savings plan to supplement your retirement. By investing regularly you can access a wide selection of assets and markets at a discount and also benefit from the highs and lows in the market. Investing on a regular basis will give greater growth than investing in an one-off lump sum plan. There are many savings plans in the market but you have to be careful with access to capital. Some will offer immediate access after a short period and are flexible, while other plans will charge a hefty fee for taking capital out.


- Financial advisor Gavin Smith analyses readers' portfolio for Emirates Business. He is Area Manager for consultants PIC, a member of the deVere Group of companies. Write to him at money@business24-7.ae

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