Business | Your Money

Prepare to take on risks

Investment options to multiply your savings

  • By Cleofe Maceda Senior Reporter
  • Published: 21:00 February 17, 2013
  • Gulf News

If you don’t have any short-term goals and have excess cash sitting in the bank, it may be a good idea to pull out your money and invest it elsewhere. Some of the options worth considering include pension schemes, investment funds or bond funds.

Although it has an element of risk, going the non-deposit route can yield significantly higher returns than cash held in the bank over a long period. But make sure you set aside enough money for emergency, so that you have some cash to use anytime you need to.

Steve Gregory, managing partner at Holborn Assets, says that even if you manage to get 2 per cent interest on deposits, it takes 36 years to double that money. Whereas, if you invest and earn 10 per cent a year, your money multiplies in a shorter period.

“Cash is not king. Cash erodes with inflation and rarely have banks ever offered interest rates that beat inflation,” notes Gregory, managing partner at Holborn Assets.

Let’s say you have Dh100,000 excess savings left after you have allocated the emergency fund. If you keep that money in a mixture of funds for 20 years at 7 per cent, your savings could grow to Dh400,000 by doubling each decade, says Gregory. In comparison, cash placed in a deposit account would earn you probably Dh150,000 over the same period.

“The balance should be invested for the longer term, say five years minimum. Markets can go down as well as up, but five years should see you with a handsome profit. Diversify well and hold at least ten funds rather than one. Then review annually or six monthly with your financial advisor,” Gregory recommends.

Some of the good performing funds in the UAE that have posted returns between 19 per cent and 62 per cent include Emirates Global Sukuk A in US dollars, Invesco Sterling Bond C, MS INVF Asian Property A, Pictet Premium Brands P and DWS Global Agribusiness.

“The funds are open to retail investors, but possibly the cheapest way to get into them is via a local insurance company or bank platform of funds,” advises Gregory.

You can also put your idle money to good use by investing in savings schemes that are tied up until retirement or your child starts college. “Banks and insurance companies in UAE offer savings plans for long-term financial planning such as child education plans, retirement plans, pension plans,” suggests Preeti Bhambri of MoneyCamel.com.

“Most of these plans are commission-based where a part of the savings goes into the cost of managing the fund. But these are worthwhile if you are not financially savvy and they help achieve the end objective successfully,” she adds.

Bond funds are yet another option that can yield higher returns than cash deposits. However, there’s still a danger that you can lose your money, such as when interest rates go up and drag bond prices down.

“Bonds are basically IOUs with legal clauses attached. [They have] a better potential for growth than cash, with corporate bonds providing a higher potential for return than government bonds or gilts, largely because of the higher risks involved. The regular income bonds provide can also be higher than the returns on cash investments,” explains Connor.

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