Always look beyond the short term when investing

Dubai: At a time when a cloud of uncertainty hangs over us, the general consensus among experts is bank savings schemes are the best options for people looking for assured returns on their surplus cash.

Some banks in the UAE are offering five per cent to six per cent return on one-year term deposits, an option that could hold appeal to many who are thinking of where to put their savings of Dh5,000 or Dh10,000 to earn a return with minimum risk.

But advisors say it's time people look beyond the short term.

Sean Kelleher, chairman of Financial Partners and Mondial (Dubai) says it is crucial for people to develop a quality plan.

Kelleher believes planning should take priority over investing.

"That plan should feature critical exercises: a focus on an investor's present position, future needs; funding ability and attitude to risk or tolerance to losses&" says Kelleher.

He calls this the Prism (protection, retirement, investment, savings and mortgage) foundation, geared specifically towards the middle earner.

Nigel Watson, sales and marketing director with Nexus Group, believes that considering the current state of the economy, long- term investment options are more beneficial.

"Long-term investments typically offer increased yields and are a less risky avenue& your return on investments isn't immediately affected by seasonal market fluctuations as your investment is over a long-term period of time and has the ability to recover and grow."

Watson says that one other short-term opportunity that could offer minimum risk is a savings scheme with a bank.

The importance of having long-term financial goals is also emphasised by Shekhar Krishnamurthy, head of liabilities and insurance at Emirates NDB Bank.

"Medium- to long-term savings plans to save towards your children's education, marriage, retirement, etc should be looked at and commenced as required," Krishnamurthy says.

Some experts say that it is essential to diversify portfolio.

Kashif Arbab, managing director of Killik and Company, Middle East and Asia, says that diversification of investments can lead to greater returns.

"The investor should avoid the historical mistake of putting all their eggs in one basket," says Arbab.

Some experts believe that taking advantage of the current economic situation can lead to future returns.

Steve Gregory, director of technical services at Holborn Assets says: "Right now there is a once in a lifetime opportunity, probably never to be repeated, to buy investments at rock bottom prices, which may even double or treble in value in a few short years, if one is brave enough to invest in the markets now."

He says that when people wait for the market to return back to normal, they potentially lose the opportunity to benefit from all that the markets have to offer.

"Waiting is the opposite of what they should be doing. They should buy low and sell high," Gregory says.

However, debts need to be managed effectively before people consider buying. Gregory says that to be in a position to buy your income has to surpass expenditure.

"[People] should pay off debts before thinking of investing in every case, and most especially where credit card debt is costing as much as 40 per cent a year in interest or 'profit' charges," he says.

Investing overseas is another option. However Arbab cautions investors not to fall in the "home bias" trap. He said that a critical international market exposure could be beneficial given the delay in the correction of financial markets worldwide.

He adds: "It will be advisable to review the exposure to different currencies in the underlying portfolio."

Kelleher however believes that those without a plan should not consider investing overseas. "I don't think a home in a foreign country is a better first investment than say a life insurance policy," he says.

Investors should also take into consideration that the advice they receive will be not be synonymous.

Neil Grant, executive director at Prosperity, says that the opinions of financial advisers may differ. And often advisers may offer varying options to people in similar circumstances.

"The individuals risk ratio [attitude to investment risk] and timescale for access to the invested capital will determine everything," Grant says.