Today, most of the people proactively look out for ways to earn an ‘active income’ where they can get compensated in proportion to the time and efforts that one puts in. This usually happens through a salaried job or a contractual job and comes with differing perks and benefits. However, in all cases of ‘active income’, the moment the person stops offering his/her time and energy, the earning ceases. That is why everyone needs the cushion of a ‘passive income’ where one receives regular earnings or capital gains from a source other than one’s employer or contractor. Passive income makes it possible for one to take a sabbatical, a long break or even retirement from one’s active income job! Earning this passive income is one of the most important reasons to invest in equities.
What are Equities?
Equity is part ownership in a company where the proportion of ownership is determined by the proportion of paid-up shares owned. Consider the Abu Dhabi Securities Exchange as an example. There are several companies in the banking, energy, insurance, hospitality and service sectors that have listed their shares in that stock market. Suppose you consult with the best equity advisor in Dubai and are advised to purchase the shares of, say, the Abu Dhabi Commercial Bank (ADCB). Now, you become the owner of ADCB to the proportion of shares purchased and are entitled to that proportion of profit that ADCB makes. This profit reaches you either as capital gains (share price increase) or dividends. In other words, when you invest in equities, you become an owner of a business which will generate passive income for you.
But why should you invest in equities when there are other ways of generating passive income as well? Here are 5 solid reasons why equities are the best investment options for most people.
Highest Return Rates
The wealthiest people in the world have the healthiest habit of investing in equities. For instance, people who own 84% of the stocks in the USA are the richest 10% of that country! This is the case because equities almost always provide inflation-beating returns which are also among the highest across asset classes. They do this through the power of compounding. The great Albert Einstein once said that “Compounding is the eighth wonder of the world. He who understands it, earns it and he who doesn’t pays it!” Equity puts you on the right side of compounding. For instance, if you had invested 1 Dirham in ADCB in, say, January 2009, it would be worth nearly 10 Dirhams today. This means that your wealth would have grown 10X over a decade apart from yielding regular dividend income. Of course, any equity consultant UAE, will tell you that there is a risk of loss in equities but when you invest in good companies with a long term horizon, you will invariably make good profits.
Liquidity And Flexibility
True wealth is that which is available to you when you need it the most. When you own a house or real estate, your net worth may be high but when you need some money, it is very difficult to liquidate 3% of the house or real estate! That is not the case with equities. Every company issues shares which are extremely affordable compared to real estate prices, and these shares can be liquidated instantly to meet financial requirements. Flexibility and liquidity are strong reasons to invest in equities.
Ability To Invest In Small Amounts
Any private equity expert Dubai will tell you that you can begin investing in equities with amounts as low as 10-100 Dirhams. This ability to buy extremely fractional ownership in companies is a boon to investors who wish to make small acquisitions on a regular basis – weekly, monthly or quarterly. There are no fractional shares but even that is made technically possible through mutual funds! Mutual funds pool the money drawn from various investors to build a large corpus which is then invested in various stocks. Check with your equity consultant UAE for more details on investing in equities through mutual funds.
The UAE imposes zero capital gains taxes and zero taxes on dividends. This means that all your income from equities is absolutely tax-free. Even in countries where there is a tax on income from equities, multiple tax benefits are offered relative to other assets. This is the reason why equities are favoured the world over as well. Every Dirham saved is a Dirham earned and equities are excellent because they are tax-free.
Regulated and Secure
You can rest assured that all your investments are safe and regulated when you invest in equities. For instance, the Abu Dhabi Securities Exchange or ADX is regulated and administered by the Securities and Commodities Authority (SCA) which is a federal authority of the United Arab Emirates. This means that all the companies have been thoroughly scrutinised by the government and have been considered safe for investment. You can also be assured of safe and hassle-free transactions in buying and selling equities.
With its stability, connectivity, infrastructure, smart governance, tax-free income and 100% foreign ownership of companies, the UAE is a perfect place to begin investing in equities. Based on your age, risk appetite and financial goals, you should select a basket of companies to invest in. It is here that the assistance of the best equity advisor in Dubai will be invaluable. Connect with us to understand better how equities would be the best investment options for you.
Asfar is an Independent Financial Advisor and Associate Partner with Continental Group based in Dubai, UAE with over 12 years of experience in the region. His clientele includes high networth individuals, corporations, C suite executives, business owners, and entrepreneurs in the region.
Although with proper planning and consistent effort, you can save, invest and distribute your own finances. It is always good to get some professional advice. If you need help in planning your finances in the short, medium, or long term, I can help you do so. You can write to me with your questions and comments to firstname.lastname@example.org