The experience of many people in and outside the UAE has shown that you don’t have to be born into wealth to create wealth. In fact, you can build wealth from scratch by exploring any of the many investment options in the UAE – and you don’t need a lot of cash to start.
These investment vehicles have created wealth for various people across the globe (and across centuries). If you consistently and systematically invest in them, you can start your wealth-building journey today.
So, what are these time-tested investment options in the UAE?
Stocks
A stock is a portion of ownership in a public company. Investors make money from stocks through dividend payments (a portion of the company’s income that they pay to shareholders) and capital appreciation (when the share price increases).
Stocks are considered high-risk and high-return assets. In the short–term, stock prices can fluctuate up and down but over the long term, the stock market tends to rise.
For example, over the past 50 years, the S&P 500 Index (an index covering the 500 largest companies in the US) has produced an average annual return of 11.95%.
There are three stock exchanges in the UAE: Dubai Financial Market (DFM), NASDAQ Dubai, and Abu Dhabi Securities Exchange (ADX). You can invest in stocks by signing up with a stockbroker who can provide access to these exchanges.
However, the US stock market remains the home of the largest, most profitable, and most innovative companies in the world. While getting access to the UAE stock market is good, participating in the US stock market is even better.
Bonds
A bond is a debt instrument that companies, national governments, subnational governments, and government agencies use to raise money.
When you purchase a bond, you make money by collecting interest payments from the debtor (usually twice a year) and the principal amount at the end of the bond’s term. Alternatively, you can sell the bond at a higher price (capital appreciation).
Corporate bonds (issued by companies) usually pay a higher interest than treasury bonds (issued by the federal government) and municipal bonds (issued by subnational governments and government agencies). This is because the risk of default (nonpayment of interest) is higher with companies than with governments (who can issue new money if push comes to shove).
Generally, bonds are considered less risky compared to stocks though they also offer lower returns. Consequently, investors have traditionally combined the two when creating an investment portfolio.
You can buy UAE bonds through local stockbrokers. However, you can also pursue higher returns or lower risk (or a combination of both) by exploring foreign bonds.
Real Estate Investment Trusts
Dubai is one of the foremost real estate centers in the world. Therefore, it is impossible to talk about the best investments in the UAE without talking about real estate.
However, because of the amount of money required to invest in properties, it is often not a viable option for many investors who are building wealth from scratch. Also, real estate is illiquid (takes time to buy and sell), costly to buy and sell (closing costs can be quite expensive), and costly to manage (you will spend time and money).
REITs provide a better option for investing in the real estate market. These are stocks of companies that invest in properties (equity REITs) or finance mortgages (mortgage REITs). Since the underlying assets of these companies are in real estate, their stocks provide exposure to the real estate market.
Also, REITs are traded on stock exchanges like regular stocks, which makes them liquid and inexpensive (lower transaction fees compared to properties).
Furthermore, while real estate returns usually trail far behind stocks, REITs’ returns compete closely with that of stocks (exceeding it over certain periods).
Exchange-traded Funds (ETFs)
ETFs are funds that track the performance of an index by mirroring its holdings. For example, an S&P 500 ETF mirrors the holdings of the S&P 500 Index and seeks to replicate its return. There are ETFs of various investment assets including stocks, bonds, REITs, gold, and bitcoin.
Buying ETFs instead of individual assets provides at least two advantages.
The first is lower cost. You pay a single fee when buying an ETF even though it contains 500 stocks or 2,000 stocks. Imagine the transaction fees you would have to pay to purchase that number of stocks. What is even more interesting is that the expense ratios of ETFs are very low, making it cost-effective for retail traders to access the market.
Secondly, ETFs make diversification easy. A single ETF can provide multiple levels of diversification. Combining multiple ETFs can then help you achieve broad diversification – across assets, industries, market caps, and regions.
Gold
Gold is an investment asset for economic downturns and uncertainty. It provides a hedge when the financial markets are in troubled waters; for example, in six of the past eight recessions, gold has outperformed the S&P 500 and provided positive returns to investors.
It is not a surprise that gold’s price began to soar when Trump’s tariffs produced global economic uncertainty. However, instead of waiting for economic uncertainty before buying gold, it may be a good idea to learn how to invest in gold ETFs and include them in your portfolio, so you can get protection during downturns without paying a high price.
Bitcoin
Though bitcoin has been touted as the “digital gold,” research has shown that it should be considered as an asset that produces high risk-adjusted returns rather than a hedge in economic downturns or inflationary periods.
Bitcoin’s returns since inception have dwarfed that of other assets and research has shown that even after adjusting for risk (what is also known as risk-adjusted returns), bitcoin is still superior. So, while including gold can help with downside protection, bitcoin can help amplify upside returns.
If you are in the UAE, you can create an investment portfolio that includes stocks, stock ETFs, bond ETFs, REITs ETFs, gold ETFs, and bitcoin ETFs through Sarwa. Sarwa provides you with access to both the UAE market and international markets like the US making it easy for you to achieve your financial goals.
The road to wealth is a long one but by creating an account with Sarwa, you can take the first step. After that, build your portfolio of the best investment assets and regularly invest in it (preferably every month). Slowly, steadily, but surely, you will be on your way to building wealth in the UAE.