Deciding on the right investment

Q: I'm not earning huge amounts of money, but do have a reasonable income. What are the first steps when considering investment? Should I be looking at property, the stock market or bonds?

A: People's attitude to investment is always fascinating. All over the world - but particularly in Dubai - you meet people working long hours throughout the week, but not taking the time to understand how their money is working for them. One study suggests that, on average, people spend less than 15 minutes a month looking into financial matters, which is shocking when you consider how important your finances are to your health and happiness.

The first step should always be a thorough evaluation of your current financial situation. An investment portfolio can only ever be as strong as its financial base, so look at your current income and assets.

Try to assess what your outstanding debts and liabilities are, and also examine the proportion of your income that you're able to save every month. This proportion should be the capital you use for investment - don't generate further debt in the hope of realising profit down the line.

Particularly with the changes in currency value that this market is experiencing at the moment, controlling debt is an essential first step: if you're paying off a mortgage back home, for example, you need to be conservative in your investments in order to maintain payments.

Take stock

You also need to consider where you are in life, and what your other responsibilities are. People heading towards the end of their careers, or enjoying their retirement, should look for security and stable returns from their investments, with less associated stress. Younger people - particularly if you don't have family responsibilities - can afford a higher level of risk and potential returns in their portfolio.

Having made these decisions, you need to begin building your portfolio. Property is often people's first major investment - you're obviously looking at the range of new property available across the UAE, and thinking about the "booming" nature of the market. Investment in property, so long as you're dealing with an accredited agent, typically offers a lower risk level than stocks and bonds.

However, while property in the UAE does offer a good chance of capital return, there's no such thing as a sure bet. Don't tie up all your funds in a single property or even across a range of properties - try to spread your assets across a broad base.

Spreading investments - property, stocks and even gold or silver bullion - is generally the right approach for the first time investor. This approach should generate a reasonable return in healthy economic times, and protect you in difficult ones.

A final step to consider is getting proper insurance. All investments have an element of risk, and even the largest portfolios can be significantly impacted by the unexpected.

Life insurance in particular is an essential part of any investment portfolio, since illness, incapacity or death can leave your family exposed. You should consider proper coverage for the breadwinners who are funding your investments. In addition, you should consider getting coverage for your new assets.

- The writer is an expert consultant at Nexus, a leading financial advisor in the Middle East.

The opinions expressed above are the writer's and don't necessarily represent views of Gulf News. Readers are encouraged to thoroughly investigate all investment decisions.

Please send your questions to advice@gulfnews.com.