At the start of the pandemic, those with adequate emergency savings felt financially secure and comparatively confident to weather this storm without much difficulty. However, with the pandemic prolonging longer than expected, one is now forced to make some tough calls.
The much-popular recommendation of 3-6 months of contingency savings are running low for most. At a dire time such as this, how can one ensure the little money one has saved up can be put to better use, to make sure one can have a bigger money cushion, if COVID-19 goes on indefinitely?
Even with cash as little as Dh2,000, financial experts are of the opinion that it is worth investing. Gone are the days wherein one needed to have a lot more money to invest in the stock market. However, what also matters, is how you invest that money.
Even before the pandemic brought about pay cuts, majority of the earners in the UAE used to make less than Dh10,000 a month, which means most people barely manage to spare less than Dh1,000—or nothing at all-- every payday.
But financial advisers reiterate that no matter how small the savings they make each month, be it Dh100, Dh250 or Dh1,000, they can still see their money grow. The key is not to keep unspent income in a jar or zero-interest bank account. Invest it.
However, when running low on income here are key go-to options when it comes to investing.
Stocks: They are one of the most popular investment options for those who don’t belong to the high-net-worth segment. They are quite affordable and you can buy shares from some of your favourite companies for less than Dh100. It is ideal to buy multiple stocks, say, a minimum of five or six, to have a diversified portfolio.
Bonds: You might want to consider putting a portion of your Dh2,000 in bonds, especially since there are a few bond options that don’t require a huge investment. Bonds can be a favourable asset class as they often provide a consistent income whilst also being considered low risk. The climate for bond investments is currently good as an environment of lower interest rates brings with it higher bond yields.
Exchange-traded funds: Like stocks, exchange-traded funds (ETFs) can be purchased at low costs through a broker, and the investor can invest as many shares as they like. ETFs use pooled money from a number of people to acquire a diversified portfolio which may include stocks, bonds, commodities. They are traded like stocks and can offer a good return. Since diversification is the key when investing, no matter how small or big the seed money is, it is best to set aside a portion of your Dh2,000 for some ETFs.
Mutual funds: If you don’t have the time to do some research on your own to pick the best stocks, ETFs or other small investment options to park your small savings in, you may want to invest in mutual funds. By choosing this option, you can benefit from the expertise of a fund manager, who will do the homework for you – such as selecting the best securities, or stocks and bonds that could make your money grow. The good thing is, you don’t need hundreds of thousands of dirhams to start buying shares.
Gold: Gold is a safe haven and does well when equities do not perform, which adds a good diversification to mutual funds and other traditional investments, and is therefore considered widely as a good investment for everyone. Gold is used to hedge against inflation and experts suggest a five per cent holding in gold provides relative security, as well as adding to the diversification of a portfolio.