Elie Irani, a 45-year-old Lebanese IT professional living in Dubai for 14 years, is a big advocate of keeping investment simple. He follows a three-pronged approach to grow his investment and savings.
Spend less than what you earn, earn more and invest better: those are the three core strategies he uses to grow his wealth and financial independence.
How to grow your investment, savings
- Spend less than what you earn
- Earn more
- Invest better
“It is important that you exactly know what your average monthly expenses are so you can plan your investments. Several budgeting techniques exist: use a personal budget tracker app on your phone, set several bank accounts for different purposes or do the anti-budget, which is ‘pay yourself first’ by transferring a certain percentage of your salary out of your main account for saving/investing,” Irani told Gulf News.
He is a member of SimplyFI.org, a non-profit community of UAE investment enthusiasts who collectively follow the Bogleheads philosophy. These investors follow the teachings of John Bogle, who founded the investment firm Vanguard in 1975.
The Bogleheads investment approach encourages people to invest by themselves and use the power of compounding interest to grow their portfolio.
What is compounding interest? It is the practice of reinvesting the interest you earn in the stock markets in the long term, which helps grow your portfolio exponentially.
The Facebook group SimplyFi is open to the public. Group members volunteer to organise meet-ups every six months to discuss their investment principles. These meet-ups are free to attend and even amateur investors are encouraged to participate.
The Bogleheads investment principles include the following: invest early and often, never bear too much or too little risk, never try to time the market, use index funds when possible, keep costs low, diversify, minimise taxes, keep it simple and stay the course.
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Irani started saving around the time he started working. He advises amateur investors to begin by reading academic studies to educate themselves. The IT professional strongly recommends Millionaire Expat by Andrew Hallam for beginners.
Saving for retirement
Irani said the duration of how long you save for retirement depends on your investment goals.
“A rule of thumb is that you need to grow a portfolio of roughly 25 times your annual expenses [adjusted for inflation], so you could be financially independent. This shall allow you to live by withdrawing 4 per cent out of your portfolio value per year [again, adjusted for inflation] without incurring substantial risk of running out of money for the rest of your life,” he added.
You need to grow a portfolio of roughly 25 times your annual expenses (adjusted for inflation), so you could be financially independent
For example, if your annual expenses cost $40,000 (Dh150,000) on average (includes house rent, food and drinks, utilities and transportation costs), then your retirement portfolio has to be worth 25 times more, that is $1 million (Dh3.67 million) for you to be financially independent.
Although this figure might initially seem out of reach, if you invest consistently, it is achievable. You can then withdraw 4 per cent out of your portfolio or $40,000 (Dh150,000) per year without the risk of running out of money. This is not including other passive income streams such as leased property, etc.
Investment mistakes to avoid
Besides not starting to save early, Irani claimed his other big investment mistakes were related to investing in high-cost saving plans with insurance companies.
“These are riddled with commissions and high fees and normally lock you down in a long-term plan with a hefty surrender penalty if you decide to get out of the plan. The hidden fees that these plans charge range between 3 to 4 per cent. These fees alone would eat up roughly 50 per cent of the returns [assuming the average yearly returns are around 7 per cent to 8 per cent],” he explained.
3-4 %
Hidden fees charged by insurance firms' savings plans
Once he realised how those hidden fees would eat away from his retirement nest egg, he exited these plans and started investing on his own using low-cost indexed ETFs (exchange-traded funds).
“Investors should also think long term and ideally avoid betting on individual stocks. Numerous academic studies show that picking stocks in order to ‘beat the market’ is totally futile and that over the long run, one would be better served by investing in index funds that track the market,” Irani suggested.
Alternative investment options
As a majority of UAE residents don’t usually have access to government-backed pension or retirement plans in their home countries, Irani suggested that they could instead invest through a robo-advisor, such as Sarwa. “They come with reasonable fees [<1 per cent] and use low-cost index funds [ETFs] with automatic rebalancing,” he suggests. Or they could opt for DIY investment by buying low-cost indexed ETFs directly using a broker.
Dealing with market volatility
Irani believes that long-term investors are not usually impacted by market volatility or the economic outlook. “We have faced several pandemics before [including the 1918 Spanish flu that claimed 50 million lives worldwide] and the market always recovered. If you are investing for the long term, you’d better ignore the financial news and simply stick to the plan. As Jack Bogle used to say, ‘Stay the course’.”
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