Baby Steps: Start with investing Dh500 a month

The first step is usually hard to take, but once you start, momentum is relatively easy to gain too. That’s true for almost everything in life, including saving and investing. Most people freeze at the thought of saving. But what if we ask you to take a small step and squirrel away just Dh500 a month for the next one year? You can even choose a lower or a higher amount; the key here is to remain consistent for at least next 12 months. This is an experiment in behavioural finance that helps people initiate investments and build long-term wealth. Most of the people who embark on this journey are likely to stay invested for longer periods and also bump up their monthly contributions.

Here are a few suggestions on what you can do with Dh500 a month:

Open a recurring deposit account: Most of the banks allow opening a recurring deposit (RD) for as low as Dh500. You can either visit the branch or open it online with a few clicks. Depending upon the tenure, the interest earned on these investments usually range from 0.25 per cent per annum to 2.5 per cent.

To put things in perspective, an RD account of 500 per month will fetch 31,967 at the end of five years at 2.5 per cent rate of interest compounded annually.

Invest it in an ETF: An ETF stands for an exchange-traded fund. It has a number of features that make these investment vehicles ideal for young investors with small amounts of capital to invest. The foremost being the low monthly investments allowed. You can start by investing Dh500 a month in an ETF of choice. These funds have low expense ratios compared with mutual funds and most of them are highly liquid, which means withdrawing money from them is easy. S&P500 ETF has given over 47 per cent return in the last one year.

An investment of Dh500 a month started in April 2020 in an S&P500 ETF, therefore, would have been worth over Dh8,800 by April this year.