How to make your gratuity work for you amid Covid-19 crisis
Choose an asset class based on your age, risk appetite and future earnings
With a significant number of people in the UAE losing jobs or moving between jobs, many are receiving end-of-service dues from their employers. While it is typical for most UAE residents to spend their end-of-service dues, financial advisers warm that it is better to save the money instead.
However, where you invest it depends on your age and risk appetite. But before anything else, financial advisers suggest that people must have three to six months’ worth of living expenses in a savings account before they decide to invest.
Anybody with the potential of high future earnings should look at equities as a major asset class to invest in, especially since markets are down now, said Vijay Valecha, Chief Investment Officer, Century Financial.
When markets panic, it is usually a good time to invest in equities and bonds since pockets of opportunity emerge and prices are attractive.
Today, the equity markets and major global indices are down 30 per cent from their highs.
LOOK AT EQUITIES AND COMMODITIES
If you are in your early 20s and 30s and want to invest your gratuity payment, look at equities and commodities, which are very volatile but also highreward instruments.
“Invest in oil right now because prices are down. Those investing in equities must consider companies like Uber and Netflix which have value stocks. They can also consider investing in growth stocks like Snapchat and Twitter,” said the investment adviser.
Meanwhile, if you have hit the retirement age in the UAE and received your gratuity, consider investing the funds in stable companies like Google, Microsoft
or Apple which has a steady dividend flow of 4 to 5 per cent. “You can also invest in oil but not directly, rather through companies like Chevron, Exon or Schlumberger which are expected to survive this crisis. They offer dividend of 7 to 7.5 per cent,” informed Valecha.
ADD SOME REAL ESTATE TO YOUR PORTFOLIO
Personal finance experts also suggest that real estate must be a part of your retirement portfolio. You are advised to first invest in real estate in the region you plan to retire in so that you can live in it once you retire. After that, look at real estate investments that offer high yields.
“Dubai offers 5.5 per cent net rental yield. Investors can buy smaller units like studio or 1-bedroom apartments in Dubai since they are easier to rent out. Spain and Italy also offer a 5 per cent rental yield,” Valecha said.
ALL THAT GLITTERS IS NOT GOLD
However, the finance expert is wary of investing your end-ofservice dues into gold. Since gold has not outperformed any other asset class since 2014, it can only be used as a tool for hedging during times of volatility.
Valecha ruled out channelling end-of-service payments into bitcoin and other cryptocurrencies. “Anyone with a very, very stable source of income can look to invest in cryptocurrencies. But anyone who is receiving their end-of-service dues and with multiple job prospects should not be looking to invest in cryptocurrencies.”
TAPPING ADVANTAGES OF BONDS MARKET
People can also consider investing their end-of-service dues in the bonds market. If you are close to retirement, consider A or AA-rated bonds.
“High-yielding bonds which are investment grade offer 8 to 9 per cent,” advised Valecha.
Many expats in the UAE choose to remit their end-of-service dues to their home country where it is put into fixed deposits (FDs). However, the majority of UAE expats are from India, Pakistan and Bangladesh and their currency is depreciating every year. “Putting money in a dollar FD will fare better than putting it in an FD in your home currency in India or Pakistan,” the investment adviser cautioned.
EXCHANGE-TRADED FUNDS ARE A SAFE BET
You can also invest your gratuity dues in exchange-traded funds (ETFs). “There is always an ETF suitable for all investor needs. When someone is retiring, they should be looking at stocks that yield high dividends. There are very secure ETFs that yield high dividends.”
A lot of people who lose jobs also tend to invest their gratuity amount into a new business. But this is a high-risk option.