I have Dh1,000 to spare every month: Here are 5 ways to grow your money

Dubai: If you have an extra Dh1,000 that you don’t need right away, you have options to grow it – provided you have a fund fully stocked for emergencies. However, the number of investment options to choose from can be overwhelming and also confusing.

“While Dh1,000 is a good amount to start investing in assets such as shares, funds or bonds, remember you may need to keep your money tied up in these investments for at least five years to really benefit, and that it will be at risk from market downturns,” said Zubair Shakeel, a UAE-based asset manager.

“When we see the word ‘investment’, many of us instinctively think of buying shares in individual companies listed on the stock market. This direct route is one way of getting into stock market investment, but there are other options.” Here are 5 different ways to grow your money by investing.

While Dh1,000 is a good amount to start investing, remember you may need to keep your money tied up in these investments for at least five years to really benefit

- Zubair Shakeel

#1: Start your portfolio with fractional share investing

Although you can always invest in individual stocks, fractional share investing lets you purchase a fraction or “slice” of a stock you want. This investing strategy lets you diversify your investments to the max, and invest in big-name stocks you couldn’t otherwise afford.

For example, let’s say you are willing to set aside Dh200 of the total Dh1,000 and invest in major global company. While such an investment amount would not get you a share of electric vehicle giant Tesla (TSLA) stock, which is currently trading at $220 (Dh800) per share, fractional share investing lets you invest your Dh200 into a slice of one Tesla stock.

This way of buying stock is perfect even if you only have Dh100 to start investing, but it works well for investors who have Dh1,000 or Dh5,000 to invest, too.

“Investing in fractional shares is as easy as investing in traditional stocks or ETFs. All you have to do is find a brokerage firm that allows fractional share investing. From there, you can research options and invest in the fractional share market at your own pace,” explained Shakeel.

“Many online brokers offer real-time fractional share investing without charging commissions. Fractional shares can be as small as 1/1,000,000 of a share, so you can spread your investment across hundreds of different companies.”

Shakeel added the strategy is best for fractional share investing and is a good option for anyone who wants to diversify their portfolio by investing in different companies. It’s also recommended to invest in a number of companies this way in order to spread out risk and possibly raise returns.

While the perks of fractional share investing is being able to diversify your investments across many stocks and ETFs, invest in large companies with share prices of over Dh1,000. Also fractional share investing can be commission-free depending on the brokerage you select, veteran investors add.

However, a key downside is that not all brokerage firms offer fractional share investing. Also, costs can add up quickly with brokerages that charge commissions for trades.

#2: Diversify portfolio further with micro real estate investing

While it may have been impossible to start investing in real estate with Dh1,000, you can now invest in real estate with small amounts through the process of crowd-funding. Real estate crowd-funding pools money from investors for the property and divides returns and gains among investors.

With micro real estate investing you’re sharing the ownership, so the risk is reduced and you can diversify your portfolio

- Brody Dunn

The UAE’s real estate crowdfunding industry includes Stake and SmartCrowd, both of which are regulated by the Dubai Financial Services Authority or DFSA. Both these platforms allow investments in ready properties that can be rented out starting at either Dh2,000 (Stake) or Dh5,000 (Smartcrowd).

However, this still requires at least two months of your savings if you were to set aside Dh1,000 every month. But is it worth investing as much in a real estate crowdfunding platform?

“With micro real estate investing you’re sharing the ownership, so the risk is reduced and you can diversify your portfolio and hedge against any market downturn,” said Brody Dunn, an investment manager at a UAE-based asset advisory firm. “Also, it can all be done digitally.”

The crowdfunding property investment platforms offer an average of 4 to 7 per cent in net return per annum after all expenses. After the investment term, investors can vote to sell the property or hold on for another six months. The sale will then be conducted as per market evaluation.

Investors can sell their shares at any time, although a holding period of 5 years is recommended. At the end of the recommended holding term, a mandatory vote is called where investors are given the option to sell their investments at market value, which is evaluated by a RERA-approved valuator.

The platforms make their money through fees – a one-time 1.5 per cent on acquisition and yearly administration fees between 0.5 per cent and 1.5 per cent. They also charge a 2.5 per cent exit fee. This is in addition to property management costs of your investments and other related costs.

“If you’re looking to invest in real estate for less without having your investments diminished from fees, such platforms can help. It is an option for consumers who want exposure to real estate markets without having to become a landlord or deal with individual properties,” explained Dunn.

“However, a key downside is that this investment option is not liquid, and it can take months to get your money out and like other investments, past results are not a guarantee of future returns.”

#3: Buy dividend stocks and let dividends pay your monthly bills

What if you could get your cellular provider to pay your cell phone bill every month? That can happen if you invested your Dh1,000 into a telecommunication stock that are known to pay a hefty dividend.

If you owned enough shares the dividend payments could cover your monthly bill, you could apply this to other monthly expenses such as your electricity bill, internet, fuel, entertainment, and groceries.

“Dividends can be a source of income for all categories of investors, they can also indicate solid, growing companies whose stock might constitute a solid investment,” said Shakeel.

Dividends might seem insignificant at first glance, but historically they have made up a significant part of the returns for investors, data shows.

Let’s say an investor had invested the equivalent of Dh1,000 in dividend stocks worldwide on December 1, 1960. If all dividends received were reinvested and allowed to compound over time, the hypothetical Dh1,000 investment would have grown to Dh245,916.

Without the reinvestment of dividends, the Dh1,000 would have grown to just Dh43,139 over the roughly 50-year time horizon based solely on price appreciation. Looking at the percentage contributions of dividends to the index’s total return by decade reinforces the importance of dividends.

#4: Build a portfolio with low-cost exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) have made it much easier to diversify your portfolio. This type of investment is similar to a mutual fund in that you can purchase many different stocks in a single ETF.

ETFs let you purchase an assortment of stocks and other securities in one shot. You can invest in ETFs with most of the major brokerage firms, and you can usually do so with low investment fees (or no fees).

“Investing in ETFs can make sense for any investor. It’s even more beneficial for those with Dh1,000 to invest because ETFs let you diversify more than you could with individual stocks,” Dunn added.

Let’s use the above example of Tesla. Instead of buying one share of Tesla Inc., which is currently trading at $220 (Dh800) per share, you could invest in several shares of an ETF that tracks the performance of a group of electronic vehicle companies including Tesla for the same amount.

This minimises risk that pertains to any one single company’s performance on your investment, but there is still the risk of the sector’s growth or lack thereof. ETFs typically having low expense ratios, and you may be able to invest or trade with no fees. Also, you can get started with a low account minimum.

“Investing in ETFs is not as costly as managing individual stock investments. There is an ETF related to almost every sector. Also, mutual funds have some similarities to ETFs. They also pool money from many investors for fund goals, and are considered relatively safe for long-term financial goals,” added Dunn.

“However, mutual funds are actively ‘managed’ – the fund managers sell, buy or manage investments actively to reach growth goals. This means higher fees for investors, in comparison to ETFs which are passive in nature as they track performance of other benchmarks.”

Investing in ETFs is not as costly as managing individual stock investments

- Brody Dunn

#5: Let a robo-advisor invest on your behalf but costs can hurt profits

If you have limited knowledge when it comes to investing, even lesser time but has an interest to start investing without high costs, experts recommend using a robo-advisor.

A robo-advisor is exactly what it sounds like – an automated stock broker that manages your investments ensuring that your money is put into the most suitable portfolio based on your chosen risk profile and growth requirement.

When you open an account with a robo-advisor, you typically start the process by answering an array of questions about your finances and your goals. From there, the robo-advisor uses computer algorithms to find the best investment options for your risk tolerance and your investment timeline.

“Robo-advisors are geared to investors who want help figuring out which investments will work best for their portfolio,” Shakeel explained.

“While there are robo-advisors in the UAE who have no minimum balance or minimum investment amount, no lock up period and no withdrawal fees, few others have a minimum starting investment of $500 (Dh1,836), which is low when you think of it as saving Dh1,000 for two months.”

A traditional stock broker will cost you around 2 per cent, which is in addition to set up fees (up to 3 per cent) and trading fees (up to 1 per cent). However, for a few others in the UAE, there are also no exit fees (when withdrawing money from an investment), so liquidity is easier and quicker.