Investing your money in the stock market remains the best way to build wealth over the long term. However, in order to avoid losing money through unwise investment decisions, you’ll need to learn how to invest money in the UAE in a way that minimizes your risk and maximizes your returns.
In this article, we consider five tips you should adhere to if you want to protect your money on one hand – and see it consistently grow on the other hand.
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Have an investment plan
The quickest way to lose money in the market is to participate in it without a concrete plan. Before you think about where to invest money, create a financial plan that will guide your investment decisions.
Begin by understanding yourself (your risk appetite and time horizon), setting out your financial goals, creating a budget, and deciding on how much you will be saving every month to achieve those financial goals.
An investment plan ensures that every investment decision is contributing to the achievement of your financial goals.
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Invest in quality assets
There are various UAE investment opportunities where you can make your money grow.
However, when considering the different ways to invest money, it’s better to focus on the time-tested ones that have gained credibility over the years: Stocks, bonds, mutual funds, ETFs, and REITs.
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Focus on the long term
One of the banes of most investors is the desire to make quick returns. If you want to minimize your risk and maximize your returns, it’s better to invest for the long term.
It’s common knowledge in the investment space that the longer you stay in the market, the lower the risk of losing your money. While market speculation can drive up the prices of investment assets here and there in the short term, over the long term market prices will move closer to the intrinsic value of the asset.
Hence, long-term investors enjoy more stability and protection and higher returns.
It’s not surprising then that the most successful investors – names like Warren Buffett, Charlie Munger, and Ray Dalio come to mind – are long-term investors.
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Diversify your portfolio
In addition to long-term investing, you can also minimize your risk and maximize your returns by diversifying your portfolio.
Simply put, diversification ensures that you are not putting all your eggs in one basket. Instead of investing in only one investment asset (say stocks), diversification means investing in different (popular and established) UAE investment opportunities.
Also, instead of having all your money in one industry (say healthcare) or one market (say the US market), diversification ensures your money is spread out across many industries and geographical markets.
As long as the assets, industries, or markets are not positively correlated (that is, that they don’t move in the same direction at the same rate), the total risk of your portfolio will be reduced compared to if you are only invested in one asset, industry, or geographical market.
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Embrace passive investing
Passive investing involves tracking the performance of a market index rather than trying to beat the market (which is known as active investing). Some of the benefits of passive investing over active investing include lower fees, lower taxes, lesser risk, and long-term focus.
The advantage of active investing was supposed to be its ability to outperform the market, but more than 93% of all US mutual funds failed to beat their indexes over the past twenty years (despite the higher fees, taxes, and risk).
Consequently, it’s better to enjoy the specific benefits of passive investing (especially how it enables you to focus on the long term) over the repeatedly uncertain use of active investing.
Conclusion
Following the crowd is the best way to burn your capital and live in regret. To truly grow your wealth, you need to have a plan and follow the best investment practices of those who have succeeded over the years.
Sarwa is a UAE-based digital financial advisor and online trading platform that helps you create and implement sound stock investment plans. They use passive investing and the Modern Portfolio Theory to help investors make a diversified portfolio of ETFs that minimizes risk and maximizes returns over the long term.
