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Mind Your Money: What is the best way to grow your fortune?

Strategic and long-term planning, regular reviews and a sound financial adviser can help meet your financial goals

Greetings, dear readers, and welcome to another edition of “Mind Your Money,” where we delve into the intricate world of financial planning. Today, I want to take you on a journey through the realm of financial advisory, sharing insights from my own experiences working with affluent individuals seeking to safeguard and grow their fortunes.

My journey into the realm of financial advisory began with a simple yet profound realisation: The importance of financial literacy in empowering individuals to achieve their goals and secure their futures. Armed with this belief, I embarked on a mission to educate and guide others on their path to financial success.

Over the years, I’ve had the privilege of serving a diverse clientele, ranging from seasoned entrepreneurs to inheritors of substantial wealth. Each interaction has been a learning experience, offering valuable insights into the unique challenges and opportunities that accompany affluence.

I’ve had the privilege of guiding you through the complexities of personal finance in this column. Your questions and concerns paint a clear picture of the challenges many UAE residents face: managing debt, navigating investments, and securing a comfortable retirement. I noticed, a common thread emerged in the queries and questing I faced.

Investment hesitation: A recent independent survey indicated that nearly 40 per cent of UAE residents lack a clear investment strategy [source: [Independent Investments Survey] survey, 2024. This survey revealed that a considerable portion of UAE residents shy away from investing due to fear of market volatility and a lack of investment knowledge.

Debt woes: Here in the UAE, a 2023 report by the Emirates Interbank Association revealed that personal debt continues to rise, with an average resident shouldering over Dh70,000 [source: Emirates Interbank Association]. household debt in the UAE continues to rise, with credit card debt leading the charge This can be a real burden, leaving you feeling stuck in a cycle of minimum payments. This can be attributed to factors like lifestyle inflation and limited financial literacy.

Retirement anxiety: A 2024 study by a UAE university highlights growing anxieties about retirement security, particularly among younger generations. This can be linked to a shift in traditional pension structures and an increased life expectancy. With a young population and a relatively new social security system, many worry if they’ll have enough saved for their golden years.

Now, let’s not sugarcoat it. Debt and financial ambiguity can be overwhelming. But fret not! Throughout this column, I’ll answer some of your most frequently asked questions, equipping you with the knowledge and tools to take control of your finances.

Investments

Question: I’m in my mid-30s and want to start investing for my retirement. What’s the best approach for someone like me who is new to investing?

Answer: It’s great that you’re thinking about investing for your retirement early on. For beginners, I recommend starting with a diversified portfolio of low-cost index funds or ETFs. These investments provide broad exposure to the market, which helps reduce risk. Additionally, consider setting up a regular investment plan where you contribute a fixed amount each month. This strategy, known as dollar-cost averaging, can help smooth out market fluctuations and build wealth over time.

Question : I have some savings and want to invest them to grow my wealth. How can I determine my risk tolerance and choose the right investments?

Answer: Determining your risk tolerance is an important step in choosing the right investments. One way to assess your risk tolerance is to consider your financial goals, time horizon, and comfort with market fluctuations. Generally, younger investors with a longer time horizon can afford to take on more risk, while those nearing retirement may prefer a more conservative approach.

When it comes to choosing investments, consider diversifying your portfolio across different asset classes, such as stocks, bonds, and real estate, to reduce risk. It’s also a good idea to regularly review and adjust your portfolio to ensure it remains aligned with your goals and risk tolerance.

Question: I struggle with budgeting and often find myself overspending. How can I improve my budgeting skills and save more money?

Answer: Improving your budgeting skills starts with tracking your expenses and identifying areas where you can cut back. Start by creating a budget that outlines your income and fixed expenses, such as rent, utilities, and groceries. Then, allocate a portion of your income to savings and discretionary spending.

To avoid overspending, consider using cash envelopes for categories like groceries and entertainment, as this can help you stick to your budget. Additionally, set financial goals and regularly review your progress to stay motivated.

Question: I want to start investing in stocks, but I’m not sure where to begin. What are some key factors to consider when choosing stocks to invest in?

Answer: When choosing stocks to invest in, consider factors such as the company’s financial health, growth prospects, and valuation. Look for companies with strong earnings growth, a solid balance sheet, and a competitive advantage in their industry.

Additionally, consider the current market environment and economic conditions. For example, during periods of economic uncertainty, you may want to focus on more defensive stocks, such as consumer staples or healthcare companies, which tend to be less sensitive to economic downturns.

Question: As a risk-averse investor, what are some low-risk investment options?

Answer: Dear investor, low-risk investment options include government or high quality corporate bonds, Sukuk, fixed deposits. These options offer relatively stable returns with lower risk compared to higher-risk investments like stocks. However, when investing, as opposed to savings, you need to have an investment horizon of 3-5 years. It would be highly suggested that your portfolio is diversified with up to 20 per cent allocation to large-cap developed market equities. Be mindful of your own risk appetite, capacity, capability and willingness to take risk.

Question: I have a high-risk tolerance. How can I diversify my investment portfolio?

Answer: Dear investor, diversification is key to managing risk. Consider allocating a portion of your portfolio to stocks, thematic ETFs, and other higher-risk investments. An advisor can help create a diversified portfolio tailored to your risk tolerance and investment goals. Alternative investments like real estate, private equity, venture capital and start up investing can also offer opportunities for diversification and potentially higher returns.

Debt management

Question : I’m a young professional struggling with high-interest credit card debt. How can I break free?

Answer: Dear young professional, to tackle credit card debt, consider a balance transfer to a card with a lower interest rate. Debt consolidation loans can also help by combining your debts into one with a potentially lower interest rate. Budgeting is crucial; track your expenses and prioritize paying off your debt.

Question: I’m an expat with a personal loan. Should I refinance for better terms?

Answer: Dear expat, refinancing your personal loan can be beneficial if you can secure a lower interest rate. However, be mindful of any prepayment penalties that may negate the savings. Compare the total cost of your current loan with the refinanced loan to make an informed decision.

Question: “I’m a self-employed entrepreneur. What loan options are available to finance my business?”

Answer: Dear entrepreneur, financing a business as a self-employed individual can be challenging but not impossible. Traditional business loans are available from banks and financial institutions. Alternative financing options such as peer-to-peer lending, crowdfunding, or angel investors are also worth exploring. Having a well-thought-out business plan is crucial to convince lenders of your business’s viability and secure financing.

Savings & budgeting:

Question: As a young Emirati professional, how much should I save and what tools can help?

Answer: It’s recommended to save at least 10-15 per cent of your income. Budgeting apps can be helpful in tracking your expenses and setting savings goals. Consider setting up automated transfers to your savings account to make saving easier.

Question: I am an expat, approaching and concerned about my retirement. How can I budget effectively for retirement with a fixed income?

Answer: Budgeting for retirement on a fixed income requires careful planning. Maximise your gratuity payout and retirement plans that offer regular income streams. Consider downsizing your living arrangements and exploring cheaper living options to reduce expenses. Part-time work can also supplement your income during retirement.

Question: I’m a high earner with multiple income streams. How can I maximise my savings?

Answer: Maximising savings requires strategic planning. It can be very easy to get carried away to spend rather than save or invest. Consider setting up automated transfers to your investment account to ensure consistent saving and investments. Invest in tax-advantaged plans and diversify your investment portfolio to optimise your returns. Consult with a financial adviser to create a customised plan that aligns with your financial goals.

Question: As a retiree living on a fixed income, how can I stretch my savings?

Answer: Stretching your retirement savings requires careful budgeting. Consider downsising your living arrangements to reduce expenses. Explore cheaper living options and consider taking on part-time work if feasible. Consult with a financial adviser to explore other options that can help you make the most of your retirement savings.

As I reflect on my journey thus far, I am filled with gratitude for the opportunity to make a meaningful impact in the lives of others. Whether it’s helping a client achieve their long-held financial goals or guiding them through a period of uncertainty, the satisfaction derived from positively influencing their trajectory is immeasurable.

In closing, I invite you, dear readers, to embark on your own journey towards financial empowerment. Whether you’re just starting out on your path to prosperity or seeking to enhance your existing wealth management strategies, remember that knowledge is your most potent asset. Equip yourself with the tools and insights necessary to navigate the complexities of modern finance, and remember to mind your money, for it is the key to unlocking a brighter future.

Sandeep S. Jadwani - ACSI, CIB (Head of Investment Advisory, Habib Investment Limited – Regulated by DFSA) is qualified, experienced and an award-winning financial adviser to High Net-worth Individuals. Been in the UAE for over 15 years and guiding individuals to efficiently and effectively manage their finances to achieve their financial goals. Connect with him on instagram @sandeep_investmentadvisor and Linkedin : https://www.linkedin.com/in/sandeepjadwanibestadvisoruae