Investments
How to we evaluate investments?
Risk
• The higher the risk, the higher the return on investment, if it succeeds.
• Is there a chance that you lose your investment?
Return on investment
• A tool used to measure the e ciency of an investment.
• What you make, over and above your original investment.
Timelines
• The amount of time you invest for.
• The longer you invest, the greater risks you can take.
Investment strategies
· High risk
Growth investment
· Long-term capital growth rather than monthly income
strategy
· Shares can be considered
· Medium risk
Balanced investment · Capital growth with some monthly income too
strategy · Equities and some interest bearing investment like a xed deposit or
property
Risk
· Low risk
Defensive investment · Emphasis on monthly income and capital growth
strategy · Investments in property and money in the bank, with a smaller
investment in equities
· Does not want risk
Conservative · Focus on monthly income while maintaining capital growth
investment strategy · Majority of investment will be in property and cash instruments to
generate monthly income.
Equities/shares
• Shares in a company (a % of the company).
• When a company is listed, the information on the shares’ performance is regularly available.
• You can become a shareholder in two ways:
1. Shares bought from the company when shares were issued the rst time.
2. Shares were bought on the JSE from a previous shareholder.
Risk
• The JSE has strict rules for companies to protect investors and hopefully decrease the risk of investing in the
companies.
• Blue-chip shares: shares in high-end companies that have stable nancial performance.
• Black-chip shares: shares in companies that have a high BBBEE rating.
• Green-chip shares: shares in companies that act in a sustainable manner towards the environment.
• Investors normally take smaller risks than speculators.
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, Return on investment
• There should be an increase in share price (capital growth).
• The shareholder expects dividends. This is the pro t of the company that is divided among the shareholders
and they are NOT taxed.
• There are a number of things that can impact the share price:
The level of con dence in the state of the economy. Management and the public’s con dence in
management.
Government policy and legislation will impact the Social issues surrounding the business.
overall con dence in the economy.
Industry performance will a ect all companies listed. Legal issues.
The nancial performance of the business: sales, Media coverage.
pro ts, nancial ratios, return on employment and
dividends declared.
• The bottom line is that demand and supply will change the share price based on the things above.
• Remember that the business DOES NOT have to give dividends if it reports that it will hamper the nancial
position of the business.
Timeframe
• Some people prefer to invest for the long-term and do not worry about seeing short-term pro ts.
• Speculators: people who buy shares when the share price is low and sells them once the share price increases.
Buy low, sell high.
Debentures
• Letter of credit (IOU) that a business sells in order to raise borrowed capital for large projects.
• Not secured by assets so if the company can’t repay the debt, the debenture holder loses their money.
• The debenture holder receives interest on their debenture amount. This interest is usually high because it is
such a high risk investment option.
Redeemable debenture Repayable on a predetermined date.
Irredeemable debenture Will never be paid back but interest is paid inde nitely.
Convertible debenture Coverted into shares on a predetermined date.
Risk
• Debentures are often sold at a xed interest rate. This can mean one of two things:
1. If the debenture’s interest is higher than the countries interest rate, the investor will make more on the
debenture than having money in the bank.
2. If the debenture’s interest is lower than the countries interest rate, the investor could have made more
money just having money in the bank.
• There is always a risk that the business goes under and the debenture holder loses their investment.
• It carries a higher risk than the bank but a lower risk than shares.
Return on investment
• The business HAS to pay interest.
• There is no capital growth.
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How to we evaluate investments?
Risk
• The higher the risk, the higher the return on investment, if it succeeds.
• Is there a chance that you lose your investment?
Return on investment
• A tool used to measure the e ciency of an investment.
• What you make, over and above your original investment.
Timelines
• The amount of time you invest for.
• The longer you invest, the greater risks you can take.
Investment strategies
· High risk
Growth investment
· Long-term capital growth rather than monthly income
strategy
· Shares can be considered
· Medium risk
Balanced investment · Capital growth with some monthly income too
strategy · Equities and some interest bearing investment like a xed deposit or
property
Risk
· Low risk
Defensive investment · Emphasis on monthly income and capital growth
strategy · Investments in property and money in the bank, with a smaller
investment in equities
· Does not want risk
Conservative · Focus on monthly income while maintaining capital growth
investment strategy · Majority of investment will be in property and cash instruments to
generate monthly income.
Equities/shares
• Shares in a company (a % of the company).
• When a company is listed, the information on the shares’ performance is regularly available.
• You can become a shareholder in two ways:
1. Shares bought from the company when shares were issued the rst time.
2. Shares were bought on the JSE from a previous shareholder.
Risk
• The JSE has strict rules for companies to protect investors and hopefully decrease the risk of investing in the
companies.
• Blue-chip shares: shares in high-end companies that have stable nancial performance.
• Black-chip shares: shares in companies that have a high BBBEE rating.
• Green-chip shares: shares in companies that act in a sustainable manner towards the environment.
• Investors normally take smaller risks than speculators.
ffi fi fi fi
, Return on investment
• There should be an increase in share price (capital growth).
• The shareholder expects dividends. This is the pro t of the company that is divided among the shareholders
and they are NOT taxed.
• There are a number of things that can impact the share price:
The level of con dence in the state of the economy. Management and the public’s con dence in
management.
Government policy and legislation will impact the Social issues surrounding the business.
overall con dence in the economy.
Industry performance will a ect all companies listed. Legal issues.
The nancial performance of the business: sales, Media coverage.
pro ts, nancial ratios, return on employment and
dividends declared.
• The bottom line is that demand and supply will change the share price based on the things above.
• Remember that the business DOES NOT have to give dividends if it reports that it will hamper the nancial
position of the business.
Timeframe
• Some people prefer to invest for the long-term and do not worry about seeing short-term pro ts.
• Speculators: people who buy shares when the share price is low and sells them once the share price increases.
Buy low, sell high.
Debentures
• Letter of credit (IOU) that a business sells in order to raise borrowed capital for large projects.
• Not secured by assets so if the company can’t repay the debt, the debenture holder loses their money.
• The debenture holder receives interest on their debenture amount. This interest is usually high because it is
such a high risk investment option.
Redeemable debenture Repayable on a predetermined date.
Irredeemable debenture Will never be paid back but interest is paid inde nitely.
Convertible debenture Coverted into shares on a predetermined date.
Risk
• Debentures are often sold at a xed interest rate. This can mean one of two things:
1. If the debenture’s interest is higher than the countries interest rate, the investor will make more on the
debenture than having money in the bank.
2. If the debenture’s interest is lower than the countries interest rate, the investor could have made more
money just having money in the bank.
• There is always a risk that the business goes under and the debenture holder loses their investment.
• It carries a higher risk than the bank but a lower risk than shares.
Return on investment
• The business HAS to pay interest.
• There is no capital growth.
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