Basics of Alternative Investments That Every Investor Must Know About to Maximize Their Income

Alternative investments go beyond traditional investments such as cash, bond, and stocks. They belong to a very dynamic asset class that covers a variety of investments with peculiar characteristics. Many of these investments are becoming more accessible to retail and individual investors. Hence, it is critical to understand the basics of alternative investments if you want to make good investment decisions in your life.

Even though alternative investments can be very profitable, there are a couple of things you must understand about them:

  • Alternative investments such as cryptocurrencies are sometimes unregulated which means more stricter due diligence is essential.
  • Some of these assets, such has property, art etc. may not be liquid because you cannot easily sell or convert them into cash.
  • They have a little correlation to standard asset classes; meaning, they don’t always move in the same direction as other assets when subject to market fluctuations

What are some popular alternative investments?

Here, we have enlisted some popular types of alternative investments that every investor must know.

Private Debt

Private debt is financed by entities aside from banks. Besides, they are also not traded in an open market.

Private debt funds raise money from investors before lending it to public and private companies. Investors make money either through interest payments or the repayment of the initial loan.

Hedge Funds

Hedge funds are the alternative investment funds that trade relatively liquid assets with the goal of earning a high return. However, hedge funds are exclusively available to only institutional investors, such as mutual funds, pension funds, and high net-worth individuals.

To maximize the return on investments, hedge fund managers are often specialized in a variety of skills to design and execute various investing strategies, such as long-short equity and volatility arbitrage.

Real Assets

The world of real assets extends to land, timberland, farmland, and even intellectual property like artwork. However, real estate is the world’s biggest asset class.

Real estate investments are considered similar to bonds in a way that property owners receive current cash flow through rental income and equity.

Commodities

Commodities are mostly natural resources and fall under the category of real assets. When you invest in commodities, you invest in resources like oil, natural gas, precious metals, industrial metals, and agricultural products. These assets are typically illiquid. However, if one wants to invest in commodities but also want liquidity, one can also invest in Exchange Trade Funds (ETFs) representing the various commodities.

Since commodities are less affected by public equity markets, they are considered a hedge against inflation. The value of commodities rises and falls depending on their supply and demand in the market.

The higher the demand, the higher profits investors earn.

Structured Products

Structured products are a part of fixed income markets as they pay investors dividend payments just like corporate or government bonds do. They can be complex, difficult to comprehend, and sometimes, very risky. However, they act as a customized product mix that suits the needs of individual investors.

Examples of structured products include credit default swap (CDS), collateralized debt obligations (CDO), and mortgage-backed securities (MBS).

Collectibles

Collectibles are alternative investments that involve diverse items ranging from rare wines to vintage cars. When you purchase such items, you also need to maintain them with the hope that their value will appreciate with a huge margin over time.

Though these investments sound more interesting and fun, the risk is higher due to the high cost of acquisition, lack of income until they are sold, and possible damage to the items if they aren’t cared for properly.

New Age Insurance Brokers LLC has rich expertise in a wide range of investment options available in the UAE. We can help you learn each of the investments in detail, what makes them a good or bad option for you, what you can expect with those investments, what risks they come with, how to invest smartly, and how to create a diverse investment portfolio.

For any assistance with traditional and alternative investments in the UAE, please feel free to get in touch with us.

The Ultimate Beginner’s Guide: How to Choose the Right Financial Product

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About 68 percent of residents in the UAE consider saving money as the top priority in 2021, according to a survey by Bayt.com and YouGov. If you plan to build your earnings, choosing the right financial product can help you grow your money over time.

The key is to not put your savings in a jar or zero-interest bank account. You need to invest your money regardless of how small you save each month.

While mastering the nuances can take years, it doesn’t take long to understand the basics of how to choose the right financial product. This guide will help you pick your investments wisely.

  1. Know the Timeline You Need to Commit to

Your timeline is the period for which you will leave your investments untouched. You can expect a reasonable rate of return with a long-term timeline. That is the reason why experts recommend people to start investing earlier in life. To build significant wealth, you must take advantage of the power of compounding.

  1. Craft the Right Asset Allocation Strategy

For investors, hoarding cash is not the ideal choice because inflation decreases the real value of cash over time. If we assume the inflation occurs at a rate of 3 percent per year, then AED 100,000 will be worth just about AED 40,000 in 30 years.

A diversified portfolio helps manage risk and earn more. It is important to understand one’s risk tolerance and manage that risk tolerance with expected returns. Even the most cautious investor should mix in a few stocks or stock index funds knowing that their investment in bonds will offset any losses. Similarly, even the most fearless investor should invest in bonds to cushion a dramatic drop in stock investments.

Your age plays an important role in how much risk you can tolerate. As you reach your retirement age, you should take fewer risks that can jeopardize your account balance.

When it comes to balancing stocks and bonds, you can follow the 120 rule. The rule is simple: Subtract your current age from 120. The resulting figure is the portion that you should place in stocks and the remaining in bonds.

Suppose you are currently 40 years old. According to the rule, you should put 80 percent in stocks and 20 percent in bonds. Once you become 50 years old, you should invest 70 percent in stocks and 30 percent in bonds.

However, one should not be limited to stocks and bonds alone. One should think beyond stocks and bonds as well. You can diversify your portfolio by expanding your investments in other asset classes, such as real estate investment trusts (REITs), commodities, and hedge funds. Why?

Choosing to invest in various asset classes does more than just manage risks. You also earn more when you diversify your portfolio. Thus, instead of focusing on the risk of each asset, you should create a diversified portfolio because it is less volatile than the individual asset classes.

When you plan to do this, seeking the guidance of financial advisors is highly recommended to understand the nuances of each alternative investment option.

  1. Conduct Technical and Fundamental Analysis

Technical analysis refers to going through enormous volumes of data to forecast the direction of various asset prices. Technical analysts believe that asset prices follow a pattern; meaning if one can decipher the pattern, they can make better decisions.

On the other hand, fundamental analysis is carried out based on the intrinsic value of an asset. For that, investors can look at the prospects of the industry, quality of company management, revenues of a company, and its profit margin over time.

Note that there is no such thing as the perfect investment. Only crafting a smart investment strategy can help you create a portfolio that offers high returns and relatively low risks.

At New Age Insurance Brokers LLC, we have a team of highly dedicated and competent financial advisors who can help you understand every nuance associated with a traditional or alternative investment. We can help you create the right investment strategy and choose financial products depending on your amount of investment, tolerance risk, and other factors and learn how to earn higher returns by minimizing risks.

If you need guidance or have any queries related to investments, contact us right away as we are always here to listen to you and help you with the best solutions.

7 Guiding Principles You Must Know While Investing

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One should start investing from an early age to allow money more time to weather the ups and downs of the financial markets and show real growth. If you haven’t started yet, now is the best time to think about it and act after creating a thoughtful and strategic investment plan.

When it comes to long-term investment planning and higher returns, one should focus on guiding principles instead of chasing for cheap tips and tricks.

So, today, we are sharing fundamental guiding principles that will pave your way to successful investing in Dubai.

Determine Your Goals and Create a Financial Plan

Your financial goal is the cue to what kind of investments will be beneficial for you. You can have any financial goal, such as savings for retirement, funds for the college education of your children, and buying a new home. Once you know what you want, get expert advice to create a financial plan to achieve your financial goals. Remember that people who have financial plans and stick with them can save several times higher than those who don’t.

Start Saving and Investing Right Away

There’s no better day than today when it comes to saving money. Since time plays the biggest role in how much wealth you will have by your retirement age or set timeline, you must start investing as early as possible. The earlier you start with your financial goal, saving, and investing, the longer you benefit from the magic of compounding. You can read more about compounding: the eight wonder of the world here.

Learn the Basics of Asset Allocation

In general, you should know about two types of investments: stocks and bonds. While stocks are considered high risk with high returns, bonds are more stable with lower returns. To diminish the risk exposure, divide your money between these two options and try to find the equilibrium between risk and stability. Your asset allocation depends on your age and lifestyle. For instance, you can take more risk on your investment portfolio while you are younger than in your 40s or 50s. There are many other types of investments such as commodities, cryptocurrencies, property, etc. One should seek consultation with a financial advisor on these more complex types of financial products.

Create a Portfolio for Diverse Investments Depending on Your Risk Tolerance

The investment market is volatile, and things can change even before you realize it. Smart investors take precautions by investing in at least two areas. Based on current savings and earning, determine how much risk you can take because the level of risk increases exponentially as the expected return increases.

If you are a low-income earner and planning to save money for your children’s education or stress-free retirement, you need to find what allocation of mix investments can keep possible risks down and stabilize your returns. However, if you are single and do not have any major debts to pay, your options can quickly change when it comes to diversifying your investment portfolio.

Build Protection against Crisis and Major Losses

While many businesses didn’t forget the global financial crisis of 2008, a large number of businesses and individuals faced a severe crisis due to the coronavirus pandemic. They are finding it extremely hard to recover from losses, especially because the majority of them had not any funds for backup. If your business or livelihood is also impacted by this crisis, you already know how difficult it is to manage and recover from such hard blows. In such scenarios, you can recover faster with ease when you hold cash, have defensive assets, and/or invest in money market instruments or securities.

Reassess and Balance Your Portfolio Regularly

As mentioned above, the investment market is subjected to volatility, and hence, the market keeps changing. Besides, life is also unpredictable which can eventually bring a change in your goals and risk tolerance. So, work with your financial planner in Dubai to keep your financial goals aligned with your diversified investment portfolio.

Follow the Buy and Hold Strategy and Ignore the Market Noise

The Buy and Hold Strategy is meant for investors who buy or invest in securities and schemes for a long time to achieve higher returns. Since your investment plan is a long-term saving plan, avoid knee-jerk reactions and ignore the noise. The investment market will always fluctuate for short-terms. So, you must stick to your plan and keep working towards your goals, unless there is a substantial change that transforms the whole scenario of the investment market.

New Age Insurance Brokers LLC is the leading insurance and investment consulting firm in Dubai that emerged at the time of the global financial crisis of 2008. Since then, we’ve helped numerous businesses and individuals gain a strong foothold with our best-in-class services and comprehensive support. We love to guide our clients and create reliable investment plans for a safer, better, and financially strong future. For any assistance with investment portfolio diversification, please feel free to contact us.

The Top 10 Best Personal Finance Books for 2021

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People who want to take more control over decision-making to change their financial situation should read personal finance books that educate and guide for the better. It is never too late to start learning, especially when you decide to become financially independent. If you were not a student of economics or didn’t learn much about budgets, investments, and financial management at your school, personal finance books can become your trusted educations resources that are easily available. Personal finance books from industry leaders and experts are a great source of valuable information on how to manage your budget, savings, spending, investments, and debt.

So, if you want to make positive changes in your life with better financial decisions, you are in the right place. In this post, we have listed down the top 10 best personal finance books for 2021 that aim to educate you with the knowledge you need to take control of your finances. These books make you feel more empowered and independent while educating you about money with timeless lessons.

  1. The Wealth Choice by Dennis Kimbro

The Wealth Choice: Success Secrets of Black Millionaires by Dr. Dennis Kimbro is an outstanding read for general life wisdom and information. The book is a great inspirational resource for people who want to understand how and some people from humble beginnings have built significant wealth with their financial decisions. The book also teaches you about their techniques and how to implement them in your life to achieve financial success.

  1. Investing 101 by Michele Cagan

If you want to learn about investment to make money, the personal finance book “Investing 101” by Michele Cagan is your crash course in building personal wealth. The book is a great read that introduces you to everything related to investing. From stocks & bonds to ETFs & IPOs, it is your personal manual and textbook that gives you advice and working knowledge to beat the heath in the investment market.

  1. Why Didn’t They Teach Me This in School by Cary Siegel

The book teaches 99 useful money lessons that everyone needs in their lives for better financial understanding and decisions. As the name suggests, “Why Didn’t They Teach Me This in School” by Cary Siegel educates you about the real-life experience and working knowledge that usually we don’t find in school lessons. The book is recommended by Forbes, eBay, and Lifehacker to college students and professionals who are new to money management for the better.

  1. Easy Money by Gail Vaz-Oxlade

If you want the best introduction to budgeting, “Easy Money” by Gail Vaz-Oxlade is a great read to understand the budget and its elements. As a personal finance educator for many years, Gail Vaz-Oxlade walks you through the concept of budgeting, how to make it, and what to include in your personal budget for better control over your earning and spending. The book is a great lesson and gives access to budgeting methods that everyone needs in their lives to start saving for the future.

  1. Broke Millennial Takes On Investing by Erin Lowry

It is another outstanding read on investing lessons by Erin Lowry. It talks about the complex problems in the world of investing and how to tackle them easily. This book can benefit everyone, especially beginners who are looking for an easy guide to level up their money. If you are looking for a book that takes on investing with an easy and readable approach, your search ends here.

  1. Your Money or Your Life by Vicki Robin and Joe Dominguez

The book talks about the 9 steps to transform your relationship with money and achieving financial independence and control. “Your Money or Your Life” by Vicki Robin and Joe Dominguez teach you that money alone is not enough to buy happiness. It is one of the best personal finance books to learn about money and life around it. It is a perfect blueprint for anyone who wants to build wealth by creating a healthy relationship with money.

  1. I Will Teach You To Be Rich by Remit Sethi

A New York Times bestseller, “I Will Teach You To Be Rich” by Remit Sethi is a valuable personal finance book that talks about systems and tools to achieve financial goals. You can adapt the lessons from this book as a six-week program that really works to achieve financial freedom and totally transform your financial life.

  1. Dollars and Sense by Dan Ariely and Jeff Kreisler

Another New York Times bestselling book that teaches you on behavioral economics in a true sense. “Dollars and Sense” by Dan Ariely and Jeff Kreisler talk about spending decisions and how your emotions and desires make an impact on them. The book cover itself stated “How We Misthink Money and How to Spend Smarter,” to give you an impression of what you are going to learn.  Dan Ariely and Jeff Kreisler take on the working of the human mind, its willingness to spend money, and why many people lose control over their spending. It not only talks about problematic behavior but also advises on avoiding those habits.

  1. The Simple Path To Wealth by JL Collins

“The Simple Path To Wealth” by JL Collins is your personal road map to achieve financial independence and become rich and free in your life. The book breaks down everything related to building wealth by investing in the future. You will learn about investing in any budget while cutting your expenses in short and easy ways.

  1. Debt Free Degree by Anthony ONeal

If you are a college-going student and want to make some savings out of your student loan, this is your personal finance book to avoid any debt during college life. Debt Free Degree by Anthony ONeal is also a great read for parents who wants to prepare their kids for debt-free college life.

Even though you can learn many things in your school and college but we need to accept one fact that education is not enough to learn everything about economics and finances. You will need to learn from the personal experience of industry leaders and experts to empower yourself. We have listed above the top 10 personal finance books that could help you in your life with more financial independence and control.

How to make a financial plan for a small business

financial plan

Today, what many small businesses lack is a full financial plan. A complete financial plan is crucial to the long-term success and growth of a business. According to a survey, organizations that had a complete business plan for their venture successfully grew their business than those that had no plan or an incomplete financial plan.

What is a financial plan, why is it so essential?

A financial plan is an overview of your current business financials and a forward-looking projection for growth.

A financial plan helps businesses set realistic expectations regarding the success of the business. A thorough financial plan also makes your business more attractive to investors.

Six Components of a Successful Business Financial Plan

All business plans, whether you’re planning an expansion for an existing business or just starting a business, should include the following:

  1. Sales Forecasting

A sales forecast is a projection of what you think of your future sales in a given period. It is a crucial part of a business plan, especially when investors are involved.

There isn’t a one-size-fits-all kind of sales projection – every business is unique. How you segment and organize your forecast depends on the type of your business and how you want to track your sales. Generally, it is better to break down sales projections into segments beneficial to you for planning and marking purposes.

  1. Expense Outlay

An expense plan includes:

  • Fixed Expenses

These are current ongoing costs of business, including operational costs like rent, payroll, and utilities. Make a list of fixed expenses as it will make it easier to distinguish critical expenses from expenses that can be reduced or eliminated if required.

  • Variable Expenses

These are also known future costs, such as promotional expenses and advertising. Plan for variable expenses to ensures that your business is financially ready via budget reduction, increases in sales, or financial assistance.

  1. Cash Flow Statement

A cash flow statement gives you an account of how much cash the business brought in, how much money it paid out, and its ending cash balance. Without this information, you won’t be able to run a healthy business.

If you are running an existing business, you should have historical documents to base these forecasts on. And if you’re starting a new business and don’t have financial statements, project a cash-flow statement breaking down into 12 months. When compiling this cash-flow projection, you should choose a realistic ratio for how many invoices will be paid in cash, 30 days, 60 days, 90 days, and so on.

  1. Profit and Loss Statement

It is a financial statement that explains how your business made a profit or incur a loss over a period of time. There are different formats for P&L statements, depending on the type of your business and the structure of your organization.

Things you should include in the profit and loss statement:

  • Your revenue
  • Your cost of sale
  • Your gross margin, which is revenue less cost of sale

Also, list your operating costs, which are the expenses related to running your business that isn’t directly associated with making a sale.

  1. Statement of Financial Position (Balance Sheet)

The balance sheet is a snap of the financial position of your business. It is essential to have an estimated balance sheet. You also have to deal with assets and liabilities that are not in the profit and loss statement.

You may get confused about dealing with assets and liabilities that don’t show up in the P&L statement. Firstly, start with assets, and estimate what you’ll have on hand, month by month for cash, receivable, and substantial assets like land, equipment, and buildings. After that, figure out your debts, such as account payable and outstanding loans.

  1. Break-even Analysis

Break-even analysis is a calculation of how much sales you require to cover all your expenses. To determine the break-even point, you need to figure out the contribution margin of what you’re selling. It is a crucial analysis for potential investors who want to know that they are investing in a rapidly-growing business with an exit strategy.

It is easy to feel overwhelmed with a financial plan when starting, but it is a crucial business plan, which you need to understand.