How to invest in uae stock market?

The main reason for this popularity is simple: today stocks remain one of the most rewarding investment assets out there.

For example, the S&P 500 Index — which tracks the performance of the top 500 stocks in the US — grew by 106.80% in the past five years, amounting to an annualised return of 21.36%. In comparison, the best annualised return on savings accounts in the UAE is 1.75%, while the yield on a 50-year treasury bond is 2.7%.

Oddly, many investors in the region still consider real estate to be the better investment. Yet, the highest gross yield in the property market is just 8.32%! Granted, you do have an asset that goes with that, but one needs to consider all other factors involved when making investment decisions.

Given the profitability of stocks compared to savings accounts, bonds, and real estate, it is no wonder why new investors are increasingly seeking out ways to buy stocks in the UAE.

In this article, we will help you get started buying stocks in the UAE by considering:

By the end of this article, you will be ready to use stocks to start growing your wealth — be it in a passive or active form.

First, a few words about stocks.

A stock is a portion of ownership in a company. When companies want to raise money from the public, they divide their ownership into smaller units called shares. To own a portion of the company, an investor will buy a share or more.

The investor buys the shares with the intention of earning dividends or selling the shares at a higher price.

The place where the buying and selling of shares take place is called the stock market, also known as a stock exchange.

There are three main actors in a stock exchange market:

Broadly speaking, there are two types of stock exchanges:

As an individual investor, your main focus will be on the secondary market.

There are three stock exchange markets in the UAE where you (as an individual investor) can buy and sell stocks.

The Dubai Financial Market was established in 2000. The market is regulated by the Securities and Commodities Authority (SCA). It was completely owned by the Dubai government at inception, until it became a public joint-stock company in 2006.

DFM is only open to companies that abide by sharia principles and there are more than 170 securities listed on the market. Those companies are majorly in the UAE, while some are from Kuwait, Bahrain, Oman, and Sudan.

Continuous trading takes place on this market from Sunday to Thursday within 10am and 1:50pm.

ADX was also established in 2000. Like DFM, they are also regulated by the Securities and Commodities Authority.

ADX also focuses majorly on companies in the UAE. The exchange currently lists 73 securities.

Continuous trading takes place on this market from Sunday to Thursday within 10am and 1:50pm.

While DFM and ADX focus majorly on UAE stocks and stocks in other middle eastern countries, NASDAQ Dubai has an international scope, with investment assets (stocks, bonds, REITs) from North Africa, India, and Turkey.

The exchange is regulated by the Dubai Financial Services Authority. DFM remains the major shareholder (66%) of NASDAQ Dubai.The exchange currently lists 146 securities

Continuous trading takes place from Sunday to Thursday, from 10am to 2pm.

However, with an app like Sarwa Trade, individual investors in the UAE can also trade on the New York Stock Exchange (NYSE).

Located in New York, United States, the NYSE is the largest stock exchange market in the world, with more than 2,400 listed securities and a market cap of $26.2 trillion. The world’s largest corporations are listed on the NYSE, providing investors access to the best-performing stocks in various industries.

For comparison, DFM only lists 170 securities, ADX lists 73, and NASDAQ Dubai lists 146. Also, the market cap of DFM is $97.38 billion, that of ADX is $199 billion, and that of NASDAQ Dubai is  $74.66 billion.

While there are many good stocks on the local stock exchanges in the UAE, the NYSE provides the best opportunities for you as an investor.

Consequently, Sarwa Trade offers you an even broader scope for your investments.

Now that you understand what a stock market is, let’s consider how to buy stocks in the UAE.

In the traditional approach, to buy stocks in any of the three UAE exchanges, you needed to register for your investor number (NIN) by completing the investor number form online or offline. After that, you would register with a broker and then start trading.

However, Sarwa Trade has simplified this process by focusing on the NYSE, which is the world’s biggest exchange, offering access to the best corporations from all over the world.

All you need to start buying stocks is to open a free account on the Sarwa Trade app.

Once you have an account, you can start buying and selling stocks as well as monitor the performance of your holdings. This includes the purchase of fractional shares, which allows you to buy small pieces of a company’s share price instead of the entire share.

There are three types of orders you can issue:

Also, on the Sarwa Trade app, you will be able to monitor the performance of your holdings.

Though Sarwa Trade offers access to the NYSE, it is not the only stockbroker that does this.

So why use Sarwa Trade?

First, Sarwa Trade is a zero-commission trading platform. You won’t pay any commission for every trade you make on Sarwa Trade.

Also, Sarwa Trade democratises investing by removing any minimum balance requirement, thus opening up its platform to the average investor, whatever the amount he/she has to invest. If all you have to invest is $100, you are as welcome as the person with $10,000.

Next, Sarwa Trade provides high-quality security through SSL encryption to protect your data and money. So you can have the utmost confidence when trading.

Furthermore, Sarwa prioritises mobile access with a mobile-first app that offers incredible mobile friendliness. You can monitor your portfolio on the go through your smartphone.

Sarwa Trade is changing the investment landscape in the UAE, helping every citizen and resident to accomplish their financial aims with zero cost, stress, or security risk.

[For more information on how to use Sarwa Trade, please read “How to Buy US Stocks in the UAE.”]

Stocks provide the highest returns compared to bonds, savings accounts, or real estate.

As an investor who desires to grow his/her money, you should have stocks in your investment portfolio.

To make the difference between stocks and other investment assets more real, consider four investors who invest 100,000 AED in savings accounts, bonds, real estate, and the S&P 500, respectively.

Based on the best annualised return on savings accounts in UAE, investor A will grow her 100,000 AED to 101,750 AED

Investor B will grow her 100,000 AED to 102,700 AED after a year.

Investor C will grow her 100,000 AED to 108,320 AED.

However, investor D who bought the S&P 500 will have 121,360 AED if he sells after a year, based on the average long-term returns of the market.

Indeed, while research shows that though stocks are risky (keep in mind that the price of selling depends on the market movement at the time, just like all assets) they still provide the best returns over the long term.

The longer you stay in the market, the less the risk of losing your money and the more returns you will have.

For example, a study of the S&P 500 between 1926 and 2019 has shown that the longer you stay in the market, the more likely you are to make money. If you stay for five years, the chance of losing money is 5%, whereas if you stay invested in the market for 10 years, it decreases significantly – to just 0.2%.

Let’s consider some important factors under two categories: factors relating to a particular stock and factors relating to an investment portfolio of stocks.

While the prices of some stocks will appreciate in value, making you money, the prices of others will depreciate in value, causing you to lose money.

The point here is that just going to the stock exchange market and buying any stocks won’t make you money. Stocks, like everything else, are not created equal.

Therefore, as a minimum, you must research if a stock is good for your investment goals by understanding its:

There are numerous other factors that stock pickers use to select their investments.

This includes studies of financial performance, management teams, and price volatility (which is done using the beta range), but we’ll leave these metrics for another, much more advanced, post.

No matter the prospects of a stock, it’s bad business to put all your investments in one stock.

Why is this so?

While that stock can make you a lot of money, you can also lose a huge part of your investments if the company fails and its stock price dwindles.

The only money you can grow is the capital you have not lost.

Thus, the opportunity cost of losing money includes all the money you could have made if you had not lost it.

Consequently, you should not put all your eggs in one basket.

According to Harry Markowitz, a Nobel Prize Winner in Economics Science and pioneer of Modern Portfolio Theory, the best way an investor can minimise risk and maximise return is to have a portfolio of assets that are not positively correlated to one another – they should be uncorrelated or negatively correlated.

Two stocks are uncorrelated when the changes in one doesn’t affect the other. They are negatively correlated when one changes in a different direction in reaction to the other (that is, if A increases, B decreases).

When two stocks are positively correlated, a fall in the price of one causes the other to also fall. Imagine a portfolio with two positively correlated assets. It means when A is losing money, B is following suit (bad news, right?).

If they were uncorrelated, B won’t move in response to A, so you can lose money with A and not B. If they were negatively correlated, A will be losing money while B is gaining it.

[For more on the Nobel-prize-winning Modern Portfolio Theory, read, “The Brilliance of Modern Portfolio Theory: A Nobel Prize-Winning Formula To Cut Investment Risk”]

So the best strategy for you is to build a diversified portfolio of uncorrelated or negatively correlated stocks instead of purchasing just one stock or two or more stocks that are positively correlated.

To achieve this diversification, you need to buy stocks in different industries, different markets (countries), with different market capitalisation.

[To learn more about the value of diversification and how to achieve it, read, “The Importance of Diversification”]

Investing in stocks can be exciting, especially when it comes to testing out your hunches and research about a certain industry.

When investing in stocks, you have the ability to freely put your money into thematic ETFs or a certain amount of stocks in a given industry, but overweighting in any one industry or theme is not advisable.

Kevin O’Leary, the famed US investor and a star of the TV program Shark Tank, has said that he recommends not placing more than 20% of your portfolio in any one given industry. Often, for a growth investor, this means not owning more than 20% worth of tech industry stocks in your portfolio — an error that many novice investors tend to commit.

In general, don’t get carried away with one sector and always diversify across multiple industries.

Since your financial goals and time horizon (how close or far you are to retirement) are different, your risk tolerance will be different from another investor.

Therefore, copying another person’s portfolio when you don’t know if your risk tolerance is similar might not be the best approach.

Ensure you build your portfolio with a dutiful consideration of your risk capacity and tolerance.

[Interested in building an investment portfolio from scratch? Read: “Building an Investment Portfolio from Scratch: The Ultimate Guide”]

In the day to day, the market can seem volatile. However, wealth growth is most likely to occur after spending more and more time in the market, rather than buying and selling stocks too often. This is known as trying to time the market.

In essence, the longer you stay in the market, the better the chances of growing your money rather than losing it.

In the short term, markets move in response to investors’ speculation about possible price movements, but in the long term, prices tend to move closer to the actual value (intrinsic value) of the stock.

Therefore, growing the value of your portfolio in the long term should be the goal.

That way, you can both protect your money and grow it.

[For more on why long-term investing is preferable, read, “Does Market Timing Work”]

Now that you know how to buy stocks in the UAE, you are one step closer to starting your investment journey and growing your wealth.

However, deciding on the best investment strategy in this country can be a challenge that individuals can rarely handle without conducting thorough research.

Often, this lack of guidance leads to some very common and painful errors:

If you are searching for smart ways on how to invest money in the UAE, this article will help provide a comprehensive guide to set up your wealth-building know-how.

In this guide, we will outline a definitive set of rules for how to invest money in the UAE, written with everyone in mind. The chapters of this guide include:

In particular, this guide will take an in-depth look to cover 5 of the most popular investment tools in the UAE:

To jump directly to that section, you can click here. We’ll explore each of these options and explain why they are the best place to start for those learning how to invest money in the UAE.

We will also introduce you to a simple, effective, and low-risk way to grow your money over the long term using new digital financial tools available.

Let’s begin.

[Need help investing in the UAE? Sarwa offers professional financial advisory that makes investing easy and affordable using smart technology. Learn more by subscribing to our newsletter, or schedule a free call with a wealth advisor that can help put your investment goals on track.]

The absence of an investment plan is the first problem many people who desire to invest money in the UAE face.

As it has been said, “he who fails to plan, plans to fail.”

Before you kickstart your investments, you need to create an easily doable investment plan to guide your wealth-making decisions. Whether you are looking for the best investment in UAE for expats or the best investment opportunities for an Emirati, it must all begin with a plan.

Many of those who lose money in poor investments do so because there is no overarching plan guiding them.

They jump into an investment because everyone else is doing it. Or they stay away from an investment because none of their friends are in it.

So before you even think about how to invest money in the UAE, whether you only have money for a small investment in Dubai, or large money for more significant investment, or even sudden wealth from a windfall, we need to begin by outlining steps for solid investment planning.

How do you do that?

Below are four essential steps.

Begin by understanding your current situation. The investment goals and choices of a 25-year-old who is just entering into the workforce will differ from that of a 55-year-old who has 10 more years to retire.

Aside from age, consider the current investments you have.

Current investments could include land, a rental property, or shares in a company.

Create an outline of your existing assets. Before you can go where you want, you need to understand where you are.

Furthermore, make a list of all your debts. If you owe money on a mortgage, a business loan, a car loan, or your credit cards, list out all of them.

Why do you want to invest?

For some people, they want to gain financial independence so they can retire when they want.

Others want to grow their wealth so they can leave an estate (inheritance) for their children.

Yet others invest so they can finally start a business of their dreams.

Here, you need to decide what your investment goals are.

Once you define your investment goals, turn those goals into clear objectives. An objective can be defined as a SMART goal — specific, measurable, achievable, relevant, and time-bound.

I want to be worth AED10,000,000 in the next 25 years is a SMART goal. I want to retire with AED15,000,000 and leave AED10,000,000 for my children is another SMART goal.

Now ask yourself what are your investment goals.

Now that you have your goals, you should move towards the next step to achieve them — creating a budget.

Unfortunately, many people jump into researching how to invest money in the UAE when they have not even completed this crucial step.

To outline your budget, financial planners often recommend the budgeting practice known as the 50:30:20 rule, whereby you allocate to spend 50% of your income on essentials, 30% on discretionary spending, and save/invest the remaining 20%.

Choose a budget formula that works best for you. However, understand that the best way to meet your investment goals and objectives is to set aside a fixed percentage every month dedicated solely to investments — we call this the “future you” portion of the budget.

Doing so helps to build the habit of spending less than you earn. Furthermore, you will enjoy the benefit of compounding. Investing AED5,000 every month is more than investing AED60,000 at the end of the year.

Create your budget and decide on how much to invest every month.

Before considering the best investments in the UAE (where to invest money), you should learn how to start an emergency fund.

An emergency fund is money set aside to cater for unplanned and unexpected expenses resulting from job loss, medical crisis, natural disasters, unexpected repairs, etc.

If you start investing without an emergency fund, you may end up liquidating your investments when emergencies arise (a terrible situation).

Set aside six months’ worth of your living expenses in a savings account, money market account, or money market mutual fund account.

For emergency funds, the primary factor is the ease of access (liquidity) rather than profitability. Put your emergency funds where you can access it when (and only when) emergencies arise.

[Need advice for how to manage your finances? Sarwa is a professional digital financial adviser that can help you better plan your investment goals.]

When considering the best UAE investment opportunities, it’s important to put a heavy focus on your long-term investing goals.

People who invest with a short-term, quick-profit mindset end up burning themselves.

However, we’d also like to make a distinction here between investing and savings. We are not classifying accounts such as savings, fixed deposits, and certificates of deposits as investing.

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case,” says Robert Allen, an author of bestselling personal finance books.

Warren Buffett, the investor legend and billionaire, echoes Robert’s sentiment. “Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value,” says Buffett.

Savings accounts don’t offer the returns and long-term growth potential you need to build wealth and achieve your investment goals.

With many banks offering less than 1% interest rate on savings accounts, this option presents a clear disadvantage for long-term growth goals. Actually, if inflation rates rise significantly, you may even lose your money in real terms.

That being said, you should create your emergency fund in savings accounts, fixed deposits, and CDS, but you must not invest in them if you want to make your money work for you over the long haul.

Now that you know how to create an investment plan, the next thing is to consider where to invest your money.

Here are the five UAE investment opportunities all intelligent investors should intimately know about.

A stock is a portion of a company’s capital that individual and institutional investors can own.

When you purchase a company’s stock, you own a portion of the company. There are two ways to make money from stock ownership:

If you had bought a thousand shares for AED60,000, your shares are now worth AED150,000. What did you need to do? Sit tight and be patient. As the company grows, you enjoy the ride.

For example, if you bought a share of Emirates NBD PJSC on January 3, 2000, at AED2.176, you have more than quadrupled your investment now that it sells for AED9.4 (as of time of writing).

To invest in the UAE stock market, you will need a stockbroker, who will provide you access to any of the three stock exchanges in the UAE — Dubai Financial Market (DFM), NASDAQ Dubai, Abu Dhabi Securities Exchange (ADX).

A stockbroker is an intermediary that facilitates transactions between buyers and sellers on stock exchanges. As an individual, you cannot buy or sell stocks in the UAE stock market (or any others) without a broker. Therefore, learning how to invest in UAE stock market begins with choosing the right broker.

Any broker operating in the UAE will give you access to any of the three UAE stock exchanges above. However, if your financial goals require you to buy foregin US stocks like Apple, Google, Facebook, etc., you will need a broker that can grant you access to international stock exchanges like the New York Stock Exchange (NYSE) and NASDAQ.

Sarwa is an example of a platform operating in the U.A.E. and providing access to international markets. With Sarwa Trade, you get the option to choose between thousands of ETFs and stocks on the U.S. stock exchanges, providing you with some of the best investment options.

In essence, while it is good to know how to invest in UAE stock market, you can do better by also expanding your reach to international stock markets.

[For more on stock exchanges and how they impact your investment decisions, read, “What Is A Stock Exchange? Everything You Need To Know”]

A bond is a debt instrument that governments and corporate companies use to raise money. For our purpose, there are three types of bonds:

You can make money from bonds in two ways:

Bonds are generally issued for a long period of time.

Unlike stocks that you can own forever (provided the company does not repurchase them), you can only hold bonds for a predefined period.

Bonds provide a consistent stream of income for a certain amount of years, such as 10-year and 20-year bonds. You can also earn on them by selling them at a higher price before maturity.

Bonds are considered less risky compared to other investments, and typically used as a counterbalance to stock investments.

“Every portfolio benefits from bonds; they provide a cushion when the stock market hits a rough patch,” says Suze Orman, founder of Suze Orman Financial Group. “Every portfolio benefits from bonds; they provide a cushion when the stock market hits a rough patch.”

However, their return is not as high as stocks: less risk equals smaller returns.

When it comes to investing in corporate bonds, investors should conduct diligent research to understand if the company has a low-risk profile, as defined by bond rating agencies.

For those without the time or skills to evaluate the stock market (and that is most of us), stocks and bonds are also available for purchase through mutual funds.

A mutual fund pools money from various individual investors and invests them in stocks, bonds, and other fixed-income securities under a fund manager’s supervision.

The fund manager is an expert who understands the market and has the experience and skills to choose individual stocks or bonds.

By pooling a large sum of money from different individuals, mutual funds offer diversification as they can invest in more companies.

When someone purchases a mutual fund, they own a portion of the mutual fund rather than the individual investments (the mutual fund operates as a company). In other words, the shareowner doesn’t own the stocks or bonds the mutual fund purchases; instead, they own the mutual fund itself.

How do mutual funds make money?

As the mutual fund grows, the value of the share price grows.

There are different types of mutual funds based on how they trade and the investments they purchase.

Based on trade, there are:

Based on the philosophy of investing, there are:

Understanding the difference between active and passive investment is essential to your wealth-building journey.

Active investments (like actively managed mutual funds) promise you more returns for higher risk.

However, they have historically failed to deliver on the higher returns even though they are more expensive (higher fees and taxes). Consequently, active investments like actively-managed mutual funds are bad for your portfolio.

Similarly, active mutual funds are not transparent; they value flexibility more than transparency.

Therefore, it’s difficult to know the investments an active mutual fund is holding at a particular time. What they hold today can change before you wake up the next day.

Mutual funds in the UAE can be broadly classified into two categories: local and international. Local mutual funds invest in local securities available on DFM, ADX, or NASDAQ Dubai. Thirty-two of such mutual funds are currently listed on the Securities and Commodities Authority (SCA) website.

In addition, there are international mutual funds that invest in securities in international exchanges like the NYSE and NASDAQ.

Whether local or international, you must consider these four factors to determine the best mutual fund in the UAE:

The best mutual fund in the UAE will have investment objectives similar to yours, competitive  performance (returns) and expense ratio, and excellent customer service.

ETFs are today’s go-to example of popular passive investments.

Over the past decade, ETFs have become among the most popular investment assets used to achieve diversification. By owning a share of one ETF, an investor gains exposure to numerous stocks or bonds within that basket.

For example, the iShares Core MSCI EAFE ETF (IEFA) tracks a broad range of companies across many industries in markets across Europe, Australia, Asia, and the Far East. When an investor purchases a share of IEFA, they are purchasing exposure to large-, mid- and small-capitalization market equities across these regions.

While a single ETF offers a lot of diversification, purchasing many ETFs offers even more.

For example, an investor can purchase an ETF of US stocks together with an ETF of international stocks, an ETF of global REITs and an ETF of US bonds.

Apart from the diversification each ETF offers, you enjoy more diversification (and less portfolio risk) by combining various ETFs that spread across broadly different markets.

Instead of buying individual stocks, bonds, or REITs, the investors can use ETFs as part of a strategy to gain more diversification, and at a fraction of the cost.

Since diversification is the same motive behind mutual funds, how then do they differ from ETFs?

There are at least five differences between the two:

Unlike actively-traded mutual funds, ETFs are more transparent. The investors know what basket of investments are in the fund and can be confident they won’t change overnight at the behest of a fund manager.

So why invest in ETFs and not just place all your money into an S&P 500 index fund?

First, index funds function similar to mutual funds that are passively traded. They are also passive investments like ETFs.

However, while ETFs are traded throughout the day on stock exchanges, you can only buy an index fund at the close of the market.

Below are some of the advantages of ETFs over index funds:

[For more on ETFs and why they have become a popular investment asset, read, “What Is An ETF? Everything You Need To Know (2021)”]

If you want to enjoy some of the benefits of the UAE real estate market without the downside of purchasing properties, you can invest in REITs (real estate investment trusts).

REITs are stocks of companies that purchase real estate properties (Equity REITs) or provide mortgage facilities to real estate investors (Mortgage REITs).

REITs are bought and sold like the shares of any other company. Instead of buying properties and managing them, investors hold the shares of companies who are investing in the market (including mortgage lenders).

REITs earn money through dividends and appreciation in the price of the REIT. They often pay regular dividends (they pay most of their income as dividends), providing a stable income source to the investor.

In a PWC report, the UAE had the fourth-highest annual dividend yield on REITs globally, eclipsing heavyweights like the US, UK, Germany, Australia, and Singapore.

REITs are great for those looking for how to invest money in the UAE and want to gain exposure to real estate without the risks of owning a property.

The best way to own REITs is by buying them as ETFs. Buying individual REITs has the same downside as buying individual stocks.

Just as there are equity ETFs and bond ETFs, there are also REITs ETFs that add to the diversification of your portfolio.

Having looked at the five common ways to invest money in the UAE, there are now four factors to consider when creating your investment plan around these asset classes.

Passive investing has at least four advantages over active investing: lesser fees, lesser taxes, long-term focus instead of market timing, and lesser risk. On the other hand, the advantage that active investing was supposed to deliver — outperforming the market — has been hard to come by.

For example, a 2020 S&P SPIVA report showed that over 86% of actively managed mutual funds in the US failed to outperform the market in the previous 20 years (2001-2020).

Source: Index Fund Advisors

If mutual funds, with the diversification they enjoy and the expert investment managers they employ, find it hard to outperform the market, it is even more difficult for individual investors.

Therefore, a smarter approach is to track the performance of the market through passive investing while enjoying lower fees, risk, taxes, and a long-term focus that is not disturbed by the noise of the stock market.

Confident of the superior value of passive investing, Warren Buffett placed a $1 million bet with the managers of Protege Partners in 2007 that a passively managed index fund will outperform a collection of hedge funds over the next decade. When the results came in, the S&P 500 Index Fund had returned 7.1% and the hedge funds 2.2%.

Interesting, right? In addition to all the advantages listed above, you have the bet of the Omaha Oracle himself as an added confirmation of the value of passive investing.

In summary, passive investing is the best way to invest money in Dubai. This is why we advise investors to buy passively-managed ETFs (see above for why ETFs are better than index funds though they are both passively managed).

You have probably heard the popular investment adage, “Don’t put all your eggs in one basket.” It’s not enough to know where to invest (the best investments in the UAE), knowing how to combine these various investments in a way that minimises risk and maximises return is crucial to building wealth over the long term.

Putting your eggs in different baskets — that is, diversification — ensures that your overall investment risk is reduced. To understand how this risk reduction occurs, we’ll need to first review a bit about correlation and risk.

Correlation, risk, and diversification

When two investments are positively correlated (correlation coefficient is greater than 0), they move in the same direction — when one falls, the other falls with it. If this positive correlation is perfect (correlation coefficient is +1), the direction and magnitude of fall is the same — a 20% fall in Asset A causes a 20% fall in Asset B.

In contrast, if two assets are uncorrelated (correlation coefficient is 0), a fall in one asset does not affect the other.

Even better, if the two assets are negatively correlated (correlation coefficient is between 0 and -1), a fall in one asset will cause the other to rise. If the negative correlation is perfect ( correlation coefficient is -1), a 20% fall in one asset will cause the other to rise.

A portfolio of uncorrelated and negatively correlated assets reduces your risk since a fall in one asset won’t lead to a fall in another asset(s). Instead, the fall will either impact no other asset (uncorrelated) or cause the other asset(s) to rise in value.

There are four different ways to invest money using diversification:

Correlation Between Various Assets From 2012-2020

From 2012 to 2020, US bonds have shown a negative correlation (-0.25) to US stocks (S&P 500) while the US Real Estate has shown a near zero correlation (0.01) to the US bond market.

The first level of diversification is to combine stock ETFs, bond ETFs, and REITs ETFs in a portfolio.

In summary, the best investment in the UAE is a diversified portfolio that contains different assets that are uncorrelated or negatively correlated.

[To learn more about the importance of diversification, read, “Learning The Importance of Portfolio Diversification Can Prevent Huge Loss. Here’s Why.”]

The portfolio structure is how you divide your money among these investments.

Choose a portfolio structure based on your investment goals and current situation (time horizon). If you are closer to retirement, its advisable to have more bonds or bond funds. If you are young, you want more stocks or equity funds.

Investment in stocks, equity funds, and REITs will be higher if you are more risk-seeking than if you are risk-averse.

Since ETFs provide greater diversification, a more risk-seeking investor can devote more money to equity ETFs and less to bond ETFs, while the risk averse investor may do the opposite.

For example, Sarwa helps investors grow their wealth through ETFs. This below portfolio structure is designed for conservative (risk-averse) investors:

Compare the above with the portfolio structure they use for growth (growth-seeking) investors:

The difference in the above portfolios shows you how differences in investment goals and current situation affects your portfolio structure.

We can then modify our definition of the best investment in UAE: a diversified portfolio of uncorrelated or negatively correlated assets structured based on your investment goals and risk tolerance.

If you want to start creating such portfolios, Robo-advisors are the best.

Robo advisors help you construct a diversified portfolio of low-cost ETFs that maximize your returns for the level of risk you choose. They use a long-term, passive approach to investing that helps you achieve your investment goals without getting caught up with your emotions.

Robo-advisors are very cheap and they help you stay on course with your portfolio structure through periodic rebalancing.

[For more on how to build a diversified portfolio from scratch, read, “Building an investment portfolio from scratch.”]

Trading individual stocks often will result in higher fees. Ensure you hold your stocks for the long term to reduce the high fees that eat into your profit.

When it comes to minimizing your fees, nothing beats ETFs. While the average equity mutual fund charges 1.42% in annual fees, the average ETF charges 0.53% (and a large portion of ETFs charge less than that).

Because of the rapid effects of compounding, the best time to start your investment journey is today.

Sarwa can help you build an investment portfolio that best matches your personal profile and investment goals.

Thanks to innovative financial technology and our emphasis on the passive approach to investing, Sarwa is able to offer low fees and a good record of maximizing returns.

The desire for financial independence and prosperity leads many to ask how to invest money in the UAE. To invest money in the UAE, you have to:

Investing in the United Arab Emirates stock market is straightforward. Individuals must open a trading account with a broker registered with one of the exchanges in Dubai or Abu Dhabi (there are three exchanges in the UAE: Dubai Financial Market (DFM), Abu Dhabi Securities Exchange (ADX), and NASDAQ Dubai).

Expats and non-resident foreigners also have an array of investment options in the region at their fingertips. Furthermore, the law offers good protection for investments in the UAE. This helpful guide provides all the essential information you need when considering investing in the United Arab Emirates.

The guide includes the following sections:

Investing in the United Arab Emirates is straightforward, and is encouraged by a business-friendly legal, regulatory, and financial environment. As one of the world’s freest economies with a globally-minded business culture, the UAE is a stable, investor-friendly global hub. In 2018, the Gulf’s second-largest economy received US$10.3 billion in foreign direct investment (FDI); mainly in trading activities, real estate, finance, insurance, and manufacturing.

Investment in the UAE is growing, with an expanding range of asset classes for expats to choose from to build wealth. From stock exchange trading to real estate purchase, private pension schemes, funds, and deposit accounts, there are investing options to suit pretty much any risk profile. And it isn’t only in wheeler-dealing Dubai where it all happens; Abu Dhabi, Ras Al Khaimah, and Sharjah are also at the investment party.

Investing in the United Arab Emirates is attractive for many reasons. Oil and gas may still flow copiously from her deserts, however, the local economy has never been more open for business. It’s in decent shape, too; the International Monetary Fund (IMF) sees gross domestic product (GDP) growing by 3.7% in 2019 (it was 2.9% in 2018). The central bank, meanwhile, forecasts a non-oil growth of 3.4% in 2019 (compared to 2.6% in 2018).

The UAE investment climate is viewed positively. Heritage Foundation, a US think tank, says the country’s broad-based economic expansion is the result of “efforts to strengthen the business climate and foster the emergence of a more diverse private sector.” It notes, in particular, the strong rule of law – a key criterion for those investing in the United Arab Emirates.

The UAE is also one of the world’s easiest places in which to do business. Getting a license to set up a local business to trade locally or internationally is quick and simple, and some structures can be set up with 100% foreign ownership. Expats and non-residents can start trading on the UAE Stock Exchange with minimal paperwork, while many foreign investors reap the benefits, and profits, of the country’s vibrant real estate market. Private pension schemes, mutual funds, and other asset classes are also popular investing options there.

Perhaps the clincher for many investors is the fact that the UAE is an oasis of economic, financial, and political calm. The government’s ambitious development goals for the country offer a degree of certainty for investors and markets. As a result, many expats and non-residents are comfortable about investing there.

Local banks serve UAE expats well and offer a range of (conventional and sharia-compliant) savings and deposit accounts, some with really attractive rates of return.

Abu Dhabi Islamic Bank (ADIB), for example, pays profits (the sharia equivalent of interest) quarterly to account holders, while First Abu Dhabi Bank offers a 4% annual return on a minimum balance of AED 10,000. Emirates NBD’s Muradaba account offers up to 1.35% return on a minimum balance of AED 5,000; the Mashreq Set Up Saver Account (interest up to 6%) requires a minimum balance of AED 10,000, and RAK Bank’s Fast Saver Account offers up to 2%.

UAE banks also offer a range of Islamic and non-Islamic deposit accounts. Commercial Bank of Dubai’s Step Up Deposit Account offers a 4% annual return on a minimum AED 10,000 deposit. National Bonds offer an expected annual profit rate of 2.5%, with profit paid quarterly, on a minimum investment of AED 100,000. RAKBANK’s Fixed Deposit Plus account provides a maximum of 3.25% on a 36-month deposit.

Yalla Compare is a useful online resource detailing features, eligibility criteria, profit rates, bank charges, and opening procedures for UAE savings and deposit accounts. It is a good idea to shop around for a product that best suits your circumstances and investment goals.

A March 2019 survey by Friends Provident International and YouGov revealed that about one-third of UAE-based expats expect to retire by the age of 55, and just over half by the age of 60. However, just under half of them were actually saving for their retirement.

Currently, expats working in the UAE receive an end-of-service gratuity payment from their employer. This is calculated on their last-drawn basic salary and how many years they have been with the company. However, a new voluntary pension scheme has recently been proposed in the UAE. Under the plan, employees’ end-of-service contributions will be collected from employers, and the sum will be invested on the employee’s behalf. The launch date is still unknown, however, those participating in the scheme will be able to contribute a higher monthly amount if they wish.

Some UAE expats choose to invest in a private pension plan, however. Things to consider if taking the plunge into a private pension plan include:

UAE property is a popular asset class that has been on the radar of international investors for almost two decades. Handsome profits have been made, and fingers have been burned in what was, for years, seen as a boom-and-bust, get-rich-quick-if-you-can market.

The roller coaster ride is, mercifully for most investors, no more. Tighter regulations limit property speculation and, as a result, the market is far more stable – and affordable. Real estate consultancy JLL notes that Dubai apartment rental and sale prices fell 11% and 9% respectively in the second quarter of 2019; compared with the same period last year. Villa prices fell 5% and 9% respectively in the same period. In Abu Dhabi, JLL says apartment rents fell 11% year on year in the same period, with prices set to fall further towards the end of this year. Prime villas went for 6% less, and apartments 15% less, in the period.

To further stabilize the country’s property market, in mid-2019 the government launched a retirement visa and issued the so-called ‘Golden Card’ long-term residence permits for investors. New laws on freehold ownership for expats buying apartments, villas, and land in Abu Dhabi (previously expats could only buy property on a 99-year lease) also came into force in 2019.

The formalities of investing in UAE property are straightforward. That said, they may be different from those the investor is familiar with. It is a good idea to engage a reputable real estate agent, and perhaps a lawyer, to help you navigate the process. They should assist, for example, with drafting agreement terms for the buyer and seller, the signing of a Memorandum of Understanding, payments of fees to developers and relevant government departments, and transfer of ownership documents.

The UAE expat mortgage market is competitive. Banks that lend to expats include Abu Dhabi Islamic Bank (ADIB), RAK Bank, First Abu Dhabi Bank, Mashreq, Standard Chartered, Emirates NBD, and HSBC. Yalla Compare is a useful resource for mortgage seekers.

Expats and non-resident foreigners can set up a UAE company with 100% ownership (i.e., no local partner is required) in a free zone. This is a designated area where taxes or restrictions on business, employment, or trade do not apply in the same way they would on the mainland. A UAE free zone company is generally easier to set up and obtain licenses for. Expats can also set up an onshore company. Because this entity needs a UAE citizen to have a 51% share, the costs of setting up (and running) an onshore UAE company are typically higher.

As a foreign investor, you will need to approach the Department of Economic Development (DED) in the emirate (Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah) in which you intend to set up the business. The DED will grant initial approval for the business, and you will be able to register the trade name.

Bear in mind that the costs of setting up a business in the UAE depend on the type of entity, activity, and license required. Capital requirements may, for example, vary according to the business type. Check out the UAE Commercial Companies Law for details.

According to Investopedia, an investment fund is defined as “a supply of capital belonging to numerous investors used to collectively purchase securities, while each investor retains ownership and control of his own shares.” In addition, an investment fund provides a broader selection of investment opportunities, greater management expertise, and lower investment fees than investors might be able to obtain on their own. Types of investment funds available to foreign investors and expats in the UAE include mutual and equity funds.

HSBC, Citibank, Emirates NBD, and First Abu Dhabi Bank offer asset management products including mutual funds. A new kid on the block is Sarwa, an online financial advisor specializing in exchange-traded funds (ETFs).

Investing in the United Arab Emirates stock market is straightforward. Individuals must open a trading account with a broker registered with one of the exchanges in Dubai or Abu Dhabi (there are three exchanges in the UAE: Dubai Financial Market (DFM), Abu Dhabi Securities Exchange (ADX), and NASDAQ Dubai). The investor must also obtain an Investor Number (available direct from the Investor Services Desk at the exchanges) to trade on DFM and ADX.

As with any stock trading, do your due diligence on the company, sector, economic indicators, and market fundamentals. Consider engaging a fund manager. And, perhaps most of all, know your risk appetite before you jump in.

There is no personal income tax in the UAE. There is no capital gains tax on the disposal of real estate or securities by an individual. Rental income is taxed at 5% (except in Abu Dhabi, where there is no municipal tax on rented premises, however, landlords must pay license fees).

UAE expats have a plethora of options for investing their hard-earned salaries and savings. Shop around and maybe hire the services of a financial planner or consultant who can assess your current financial situation. This includes factors such as your objectives and time horizons. This way, you can make optimum decisions for your investment portfolio.

Bear in mind that investing in the UAE may be different from what you are used to. Set your expectations, and goals, accordingly. Do your due diligence, and understand the market.

The bottom line is – do your homework! And engage with people on the ground who can give accurate, impartial advice.

The first port of call for most foreign investors in the UAE is the government agencies. Dubai FDI helps foreign businesses set up in the city, while the Ras Al Khaimah Investment Authority (RAKIA) offers personalized service and support for entrepreneurs. Down in the capital, it is worth checking out the Abu Dhabi Chamber for business support services.