Money Clinic: Dh1 million – where to invest it and what you should consider

National Bonds millionaire can't decide what to do with her winnings.

I won Dh1 million in the National Bonds draw last week and am going to give half of the winnings to help a close family member clear a bank loan. The rest I am considering reinvesting into National Bonds. I am from Pakistan and have kept all of my savings in National Bonds since the scheme was first launched in 2006, but are there any other investment options I could consider? SB, Dubai.

The expert advice

Andrew Prince, financial planner, Acuma Independent Financial Advice

Before you consider what your investment options are, I would suggest having a clear understanding with your family member; on what basis are they being given the money? Is it an outright gift or as a loan, repayable with or without interest? Put it in writing to avoid later arguments.

Establishing this will enable you to identify whether you will be investing for income or growth on the remaining balance. Once this has been established, you will then want to consider the following as a basic checklist:

• First, do you have three to six months of cash for emergencies?

Any investment should consider contingency for the what if, funds and also any planned expenditure.

• What is your appetite to volatility (risk)?

National Bonds are not without risk; their published profit rate has at times been below the rate of inflation ie the cost of living. It stands to reason therefore, that if you do not win a “prize” your money is losing its buying power in real terms. While you have been fortunate enough to win the main prize, you may not be so lucky in the future.

• What is your investment time horizon?

Most advisers will recommend a minimum investment term of five years to offset the impact of charges.

• Is there a particular objective for these funds, such as education costs?

Your adviser will be able to guide you and reduce the portfolio’s volatility the nearer you get to the objective date.

Once you have a clear objective, then you can contemplate whether you have the time and resources to make the investments yourself. An independent adviser will consider the investment world from individual corporate bonds, stocks, ETFs, mutual funds and so on. However, I would suggest that with Dh500,000, diversification should be the highest priority to produce above inflation returns over the medium term.

It pays to take professional advice. An Independent Financial Planner who works on your behalf, not the solution providers, will assist you.

The reader’s advice

Mohammed Khan, Dubai

Well done on your win. It seems the National Bonds have been a source of good luck to you so maybe it is best to stay with what you know and what is safe. However there are many options for investment here in the UAE. One of the more startling stories of last year was the rise of equities (stocks and shares) on the Dubai Financial Market. The bourse is up more than 107 per cent from the beginning of 2013, and there are not many investments that will double your money in a year.

The equity markets are a good barometer of the economic climate and often mirror the atmosphere of a city or country; when a city is confident they fly high; when insecurity is in the air they drop like a stone. Dubai is presently seeing a boom playing across its property and banking sectors so if you believe it is likely to continue then putting some of your gains into those stocks would make sense. Some analysts are suggesting there will be a drop (or correction) in the levels of these stocks as early investors take some of their gains; that may well be a good time to buy stocks if you believe that Dubai has enough in the tank to keep the good times rolling. Remember that stock prices rise and fall and keeping a watchful eye on your investment is very important.

Next month’s Money Clinic

I have credit cards from First Gulf Bank, National Bank of Abu Dhabi and RAKBANK and would like to close at least two of them. I have tried to get a personal loan from other banks to settle the cards but nothing helps except Dunia where interest is too high. Banks can't provide the loan I need because either my company is not listed, my salary doesn't meet the requirement or my length of service in the present company is not long enough. Please can you help? WS, Abu Dhabi

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