A lingering gap in the savings market, and a lack of awareness about the important benefits of responsible saving, is putting UAE residents at risk of mismanaging their hard-earned money, warns the GCC’s leading financial advisor.

“People are not aware of the range of investment instruments available to help them with their savings and in the event of a personal emergency. These instruments are generally available in the context of savings and protection plans,” says Snehal Urankar, Investment Advisory Analyst at Nexus Group.

Furthermore, while people with more than $1 million of liquid investable assets have access to private banking, and those with less than $250,000 are well taken care of by premier banking products, those with between $250,000 and $1 million of liquid investable assets tend to fall through the cracks.

“Here, a range of ‘lump sum’ products are available with an insurance wrapper, allowing for regular and lump sum savings, which give investors access to products that are usually only available to private banking clients while still offering them more protection,” Urankar said.

With recent data from the Boston Consulting Group showing that private wealth in the UAE is set to reach $1 trillion by 2020, increasing at a compound annual growth rate of 14.1 per cent, it is more critical now than ever that UAE residents, regardless of income or affluence level, are educated about how best to safeguard their financial assets.

Putting money away in a current account or fixed deposit is often perceived as the safest and most convenient approach, says Urankar, however, there are a number of disadvantages to this method, including that savings kept in a current account are subject to continuous erosion due to inflation. Currently, inflation in the UAE is higher than deposit rates offered by banks.

“This makes it important that you supplement cash with assets that offer a higher yield. This is where all other asset classes offer value,” she said. And while ‘cash is king’ and an important part of any portfolio because of its ability to cushion the blow from unexpected events, this should form a relatively small portion of an individual’s liquid assets and should be kept in the right currency. “Cash should be something you keep as an emergency liquid supply to deal with unexpected events, such as a major systemic financial disruption,” said Urankar.

“You must, however, ensure that the cash you keep at home is covered by your Home Contents insurance policy in the event that it is lost to burglary or accidents, such as fires or floods, which are more common than systemic events shocking the financial markets.

At the end of the day, diversification of assets is key. A durable portfolio should have a variety of components, such as cash, bonds, equities, mutual funds, insurance, real estate, other real assets, as well as some alternative investments, advises Urankar. Collectibles are also gaining popularity as a way of diversifying portfolios, as these have a low correlation to financial assets

“How much a person should allocate to each asset class is entirely dependent on their risk profile and time horizon,” she said.  “There is no magic formula for this, it would vary on a case by case basis. Seeking the guidance of a credible wealth manager could help you decide how best to distribute your wealth.”