(Please note this article originally appeared on adamfayed.com)
Updated September 21, 2019
Salary packages in Dubai, Qatar and other Middle Eastern countries can be high, for certain industries at least.
The region is also a hub for entrepreneurs. Tax-Free living should theoretically make saving and investing vast sums of money easy.
However, I have met countless expats in the region who aren’t meeting their financial goals.
In fact, about 25% of the people who reach out to me online, are living in the region. This article will consider why that is and give some general financial tips.
This article will review the biggest mistakes expats typically make, alongside answering some frequently asked questions.
This article is long. So for the time poor expats who are looking to invest or get a second opinion on an existing investment, please email me — firstname.lastname@example.org.
What are the biggest mistakes expats make in Dubai and Qatar?
Speaking to expats in the region, who often approach me after getting previously bad advice, or getting into bad habits, the following things are the most common mistakes;
1. Wanting a local advisor.
Whilst this is changing, as more and more things go online with financial services being no exception, some expats still want a local provider.
This means having a flash office in the centre of Dubai. With a lot of admin support and other things. Ultimately, however, who pays for those facilities?
The client pays. An online provider can usually do things more cheaply, efficiently and quickly than somebody who is using old school methods.
It is also safer in many ways. An online broker is much less likely to go out of business, compared to a firm with huge overhead.
I have met countless firms who have gotten into cash flow issues, and the main reason is their $30,000-$50,000 per month office costs.
Let’s not forget as well, that you will probably leave Dubai or Qatar in the future. Many expats move every 3–4 years, and want an advisor to follow them, whenever they are located.
So having an advisor who utilizes technology can be key. Flicking your advisor a message on WhatsApp or email, wherever you are in the world, is much more convenient than old school ways of doing business for the time-poor.
In addition, many investors get attached to financial advisors from specific countries, such as their country of origin.
For example, many British people in Dubai have UK advisors, whilst the majority of Indian expats have employed Indian financial advisors in the region.
In certain instances this can make sense. Sometimes in very specific cases, such as tax-related cases, such advisors may have specialist knowledge or qualifications.
When it comes to most types investing though, the key things are investment returns, fees and communication.
This isn’t nationality-specific. My non-British clients, to the best of my knowledge, are no less happy than the Brits!
2. Not cashing out bad policies
Nobody likes losing money or even declining markets. Sometimes, moreover, a decline is temporary. Look at 2008–2009. The markets crashed and came back strongly.
In other situations through the fundamentals of the investment are bad. This is especially the case with costly and opaque investment vehicles. Often times, cashing out and taking the hit, makes sense.
I will give you a simple example. Let’s say an expat invested in a $100,000 policy in 2012. The value eventually falls to $90,000 in 2013–2014, despite rising markets.
The person eventually sells the investment in 2017, for $103,000. At least they didn’t lose money, right? However, in that period, US Stock Markets increased by more than 10% per year on average.
Selling out at $90,000 would have been painful, but many lower-cost investments would have made up the $10,000 loss, from taking the $90,000 in 2012, within 13–14 months.
3. Keeping up with the Jones’
Dubai and even Qatar to an extent have a materialistic culture. I was struck by how many people seemed to be showing off, the first time I visited Dubai in 2007.
Many expats get into the habit of spending money they don’t have, to buy things they don’t need and/or want, to impress people they don’t like or respect.
I have seen many expats on huge packages, who don’t save or invest $1, or even get into debt!
4. Home country bias
It is human nature to be more reassured by the familiar. Psychologists call this familiarity bias. Sometimes, though, it is a huge mistake. This is especially the case with investing.
I am from the UK, as most of my readers know. However, does it makes sense for me, as an expat of 8 years and counting, to keep most of my wealth in Pounds?
And to keep my investments purely in the UK FTSE100, UK property and UK Sterling? Clearly not, especially with Brexit and the Tory Leadership contest going on, as we speak.
Familiarity bias also causes people to invest in local stock markets, as they become more familiar with the names listed on the exchanges.
In the case of Dubai or Qatar, there aren’t many good reasons to invest in the local markets, as opposed to the S&P50, MSCI World or numerous other indexes.
Trying to market time, stock pick and buy and sell coins, are all forms of financial speculation. Being a speculator and a long-term investor isn’t the same thing.
It is also a mistake to assume that only kids and irresponsible people invest in such schemes.
Investing in high-risk schemes like FX isn’t a scam in most cases, but is ultra high-risk. Ultimately, people from all backgrounds can get into the extremes of greed or fear.
6. Not considering your tax situation
Regardless of your nationality, it is important to remain tax-compliant. If you are American, you need to consider your tax situation when you invest overseas.
If you are British, you shouldn’t need to pay tax on your overseas income, assuming a few conditions are met.
You do need to pay tax on your UK sourced income, though, including any capital gains from property or markets.
Considering local taxes is also important, although the tax system in Qatar and Dubai is fairly simple and straightforward.
7. Thinking brand names matter
Most people like to feel safe. That is human nature, but assuming that big brands are safer can be a big mistake.
I spoke to an expat in Dubai 3–4 weeks ago. He is getting very poor investment returns, despite markets performing very well in the last 10 years.
When I asked him why he picked the specific product, he said that the firm sounded like a huge name.
I won’t mention the name of the firm here, but it is one of the biggest insurance companies in the world, that offers insurance-linked investments.
Big brands can get away with charging more because they will still get clients regardless of their charging structure.
Often times boutique and specialist providers can offer better services, at offer costs. This doesn’t just apply to finance, either.
I have certainly had better experiences with boutique hotels, recruitment firms and medical clinics than big brands and I guess you have too!
8. Not considering your UK pension situation carefully
Many UK expats transfer their pension schemes overseas. Whilst there are many good reasons for this, including tax benefits, there are positives and negatives involved in transferring a pension.
For smaller pension pots, the fees for transferring the pension offshore can eat into the gains of taking action.
The investments that you are in, moreover, should also be considered. There is no point in transferring a pension offshore if your investment returns will be poor, regardless of the tax benefits.
9. Focusing on local property
We have already spoken about familiarity bias and how it can affect investors. Property is another example of this.
Dubai and Qatar are not cheap property markets. That doesn’t mean that you should never consider buying a property.
There will be plenty of people, especially professional real estate investors, who make a lot from property in the region.
If you plan to live in the region for 20–30 years, you may also just be using property as a home rather than an investment.
However, assuming renting is always dead money, is a key mistake. Renting can be cheaper than buying as many academic studies have shown.
It is less time consuming as well. If your boiler breaks tomorrow, your landlord or the property management company will have to fix ir, and pay to alleviate the issue.
As time is money, and many expats are time poor, renting can make a lot of sense.
Insurance is a necessary evil for most expats living in Qatar or Dubai. However it is a dead-money product.
It isn’t like an investment, where you are rewarded by investing more. Therefore, you should spend as little as possible, for getting as much as possible.
I have met several expats overpaying for insurance. Getting a cheaper option on renewal makes sense.
When it comes to life insurance, you don’t need it, unless you have kids or plan to have them. If you do have kids or a dependent, cheap term insurance is much better than the more expensive insurance-linked schemes.
Insurance and investing should be kept separate, as a generalization.
11. Leaving the money in the bank
At the opposite end of the extreme to greed, fear can consume many potential investors, who are petrified by market volatility.
It is understandable because finance and investing can seem confusing for most people. This isn’t helped by the media, who engage in sensationalism whenever markets fall.
However, leaving money in the bank, whether in Qatar, UAE or the UK, is a losing long-term strategy.
These days the banks pay close to 0%, and even if you lock away your money, beating inflation isn’t easy.
You can’t realistically, therefore, save your way to retirement, especially when you are living overseas, outside your home countries social security system.
So investing, as opposed to saving money, is important. Long-term investing isn’t dangerous, even though markets are volatile.
The Dow Jones was trading at 66 in 1900 and hit 26,800 this year. $10,000 invested in the S&P in 1942, would be worth $50M in 2019, but there have been many bad times for markets.
Historically, you have a 28% of being down over a 1 year period, and a 72% chance of being up.
That falls to a 10% chance of being down over a 10 year period and 0% over 20–25 years. In other words, a buy and hold investor, who doesn’t panic, has never lost in markets.
I am not implying that just because something has never happened before in the 200 years of markets being around, that it can’t happen in the future.
However, having your money in a combination of 3–4 major stock markets and the bond markets is a long-term winning strategy.
Markets are just the biggest firms in the world, after all. They do tend to get more profitable and efficient over time, due to technology.
12. Not factoring in purchasing parity
Dubai and Qatar aren’t cheap places, despite the lower taxes. It might sound obvious, but you need to consider the local cost of living.
I have met countless expats who have considered offers at the end of their 3–4 year contract.
Many do not consider the various cost of living implications and reject opportunities on this basis.
I have one British client who didn’t want to earn $5,000 less per month, for relocating to Vietnam.
When we went through the figures, however, his ability to save and invest had probably increased, due to the lower costs of living.
13. Focusing on illiquid assets
Many successful business people have growing businesses. They assume they don’t need to invest, due to having a valuation like $3m.
The same with many property owners. However, consider that it isn’t always easy to find a buyer for an illiquid investment.
It can take months or years to find buyers, especially for businesses. In the meantime, if something unexpected happens to your health, you may be left with little income.
I have lost count of the number of struggling business owners that were affected by the Saudi blockage of Qatar.
I have also seen several business owners go out of business in the last 10 years, in places such as Thailand, Tunisia and Egypt.
The point is, too few people “hope for the best but plan for the worst”.
14. Comparing yourself to people back home.
People in your home country might be paying into the social security system. This can be a huge benefit.
As an example, the UK’s Old Age Pension might sound like a tiny benefit, but $10,000 a year is the equivalent of having $250,000 extra in retirement if you were saving for that benefit yourself.
This is because the “4% rule of retirement” dictates that you can only safely withdraw 4% of a retirement pot every year.
The point is, there are many people in the UK, Canada and beyond, that don’t save and invest anything.
However, they are often paying into government and company pensions, which means they might have 40,000 or more in retirement, without investing additional money.
$40,000 is the equivalent of saving and investing $1m on your own, given the aforementioned 4% rule.
Yet I have seen many expats claim “I am saving and investing more than people back at home”, forgetting that those people often have access to additional benefits.
So as somebody who doesn’t have access to these benefits, you need to try harder to invest and make up for this deficit.
That isn’t to mention that your cost base in retirement might be much higher than many of your friends back home.
Do most people need financial advisors whilst living overseas?
I have met countless expats who have read a lot of financial books. Some are time-rich as well.
Expat retirees would be one example or those who are semi-retired. Semi-retired consultants in the Middle East are another example.
On average, however, most expats are time poor and don’t feel they are experts in the area. For those expats, financial advice is often useful.
Beyond investment advice, general financial planning advice can be needed. Budgeting and financial plans seem simple, but simple and easy aren’t always the same thing.
Simple tips like using cash more, and your credit card less, and writing down a budget unique to every month, can make a huge difference to your budget.
As an example, studies have shown that people who use cash more, spend 2%-5% less, without even trying.
This is probably due to the fact that spending the money feels more painful when you need to give away something physical.
Often times getting this third-party advice can be useful.
What are the costs of investment advice in the region and beyond?
Different advisors charge contrasting fees. I charge 1% on smaller portfolios and 0.5% above $500,000.
As a generalization, the bigger firms (like life insurance companies and banks) charge much more.
How about robo advisors?
There are numerous robo advisors in the region, and beyond, that are available to UAE and Qatari expats.
Sarwa is one such example. Robo advisors can be very good, when it comes to basic financial advice, especially when used in tandem with an advisor.
They are not as good, when it comes to more complex issues, like estate planning, budgeting and so on.
I have written another article on robo-advisors, which is more in-depth, and can be accessed here.
How about financial advice in Saudi Arabia, Oman and other Middle Eastern countries?
The fundamentals of sound financial advice are the same all over the world, for expats and locals alike.
The main differences are your unique situation, and also some platforms don’t accept for certain geographical locations.
What are your contact details?
email@example.com and a range of apps.
For expats with existing policies, including UK pensions, this article would be useful to read;