INVESTMENTS
Business Studies 2021
When evaluating the best investment opportunities look at these to determine the most
suitable investment option:
1. Risk
2. Return on investment (ROI)
3. Timelines
RISK
❖ High risk: expected to deliver higher returns if the investment succeeds + high loss
of the investment fails
❖ Diversification: combination of investment options is used to spread risks over
different assets
❖ The investor has the option to choose the degree of risk relative to the most
suitable investment option for them at that point in time.
RETURN ON INVESTMENT (ROI)
A tool to measure the efficiency of the investment
Indicator of what the investor will get back over and above the original investment made
TIMELINES (PERIOD OF INVESTMENT)
The longer the period of investment is available to the investor, the greater the risks are
that the investor can afford to take
DIFFERENT INVESTMENT STRATEGIES
GROWTH INVESTMENT • High risk
STRATEGY • Long-term capital growth, rather than a monthly
income
• Shares (equities) on the JSE may be considered, with
Blue-chip shares reducing the risk factor.
1
, BALANCED INVESTMENT • Medium risk
STRATEGY • Aim is capital growth, with some monthly income.
• A combination of shares/some interest-bearing
investment (fixed deposit) will be considered or
investment in property with a monthly rent income.
DEFENSIVE INVESTMENT • Low risk
STRATEGY • Emphasis is more on a monthly income, but the
investor wants some capital growth.
• Investments in property and money in the bank, with
a much smaller investment in equities.
CONSERVATIVE • Conservative investor wants limited risk
INVESTMENT STRATEGY • Focus is on a monthly income, while preferably
maintaining the capital amount of the investment
• The majority of the investment will be in
property/cash instruments to generate the monthly
income.
investment in the correct property will lead to capital
growth.
INVESTMENT OPTIONS/INSTRUMENTS/VEHICLES
(ASSET CLASSES)
EQUITIES (SHARES)
❖ Also known as shares/stocks in the company
❖ Some companies are listed on the JSE. others are unlisted
❖ Listed companies: information on the shares performance is regularly available
❖ Unlisted companies: information on the financial performance of the business is
available to shareholders, banks, creditors and SARS - not to the general public.
➢ Without this financial info, it will be impossible to evaluate whether the
investment has delivered acceptable returns.
❖ Owners of shares: each own a portion of the business
Two options/methods to become a shareholder in a JSE listed company:
1. The shares were bought from the company when shares were issued the first
time, thus the person who bought the shares contributes capital to the business.
2. The shares were bought on the JSE from a previous shareholder. The money paid
for the share is not going to the business, but to the person who sold his/her
shares.
Shares bought and sold on the JSE have no impact on the capital available to the
business.
2
, RISK:
❖ The JSE (and other stock exchanges in the world) have strict rules for companies
to list to protect investors and decrease the risk of investing in these listed
companies. Despite this, equities are still seen as a moderate to high risk
investment.
❖ Blue-chip shares are shares in high-end companies on the stock exchange
➢ risk of acquiring shares in a blue-chip company is smaller than having
shares in another company.
➢ The ROI in these blue-chip companies is usually higher than in other
companies.
❖ Investors usually take smaller risks than people speculating with shares
RETURN OF INVESTMENT (ROI)
Evaluation of ROI = two factors that contribute to the ROI
1. Increase in share price and sell at a higher price
2. Dividends
Shareholders will buy shares in a company with the expectation that:
1. The share price will increase over a period of time (capital growth)
2. Good dividends will be generated. Dividends are the profits of the company that
are divided among the shareholders.
3. A combination of the above occurs, as this usually helps to outperform inflation
Market forces (demand and supply) will determine the price of a share on the stock
market, the price is determined by how many people want the product (demand) and
how much of the product is available (supply).
MARKET FORCE FACTORS THAT WILL IMPACT THE DEMAND FOR THE SHARE & INFLUENCE THE SHARE PRICE &
IMPACT OVERALL RETURN:
3
Business Studies 2021
When evaluating the best investment opportunities look at these to determine the most
suitable investment option:
1. Risk
2. Return on investment (ROI)
3. Timelines
RISK
❖ High risk: expected to deliver higher returns if the investment succeeds + high loss
of the investment fails
❖ Diversification: combination of investment options is used to spread risks over
different assets
❖ The investor has the option to choose the degree of risk relative to the most
suitable investment option for them at that point in time.
RETURN ON INVESTMENT (ROI)
A tool to measure the efficiency of the investment
Indicator of what the investor will get back over and above the original investment made
TIMELINES (PERIOD OF INVESTMENT)
The longer the period of investment is available to the investor, the greater the risks are
that the investor can afford to take
DIFFERENT INVESTMENT STRATEGIES
GROWTH INVESTMENT • High risk
STRATEGY • Long-term capital growth, rather than a monthly
income
• Shares (equities) on the JSE may be considered, with
Blue-chip shares reducing the risk factor.
1
, BALANCED INVESTMENT • Medium risk
STRATEGY • Aim is capital growth, with some monthly income.
• A combination of shares/some interest-bearing
investment (fixed deposit) will be considered or
investment in property with a monthly rent income.
DEFENSIVE INVESTMENT • Low risk
STRATEGY • Emphasis is more on a monthly income, but the
investor wants some capital growth.
• Investments in property and money in the bank, with
a much smaller investment in equities.
CONSERVATIVE • Conservative investor wants limited risk
INVESTMENT STRATEGY • Focus is on a monthly income, while preferably
maintaining the capital amount of the investment
• The majority of the investment will be in
property/cash instruments to generate the monthly
income.
investment in the correct property will lead to capital
growth.
INVESTMENT OPTIONS/INSTRUMENTS/VEHICLES
(ASSET CLASSES)
EQUITIES (SHARES)
❖ Also known as shares/stocks in the company
❖ Some companies are listed on the JSE. others are unlisted
❖ Listed companies: information on the shares performance is regularly available
❖ Unlisted companies: information on the financial performance of the business is
available to shareholders, banks, creditors and SARS - not to the general public.
➢ Without this financial info, it will be impossible to evaluate whether the
investment has delivered acceptable returns.
❖ Owners of shares: each own a portion of the business
Two options/methods to become a shareholder in a JSE listed company:
1. The shares were bought from the company when shares were issued the first
time, thus the person who bought the shares contributes capital to the business.
2. The shares were bought on the JSE from a previous shareholder. The money paid
for the share is not going to the business, but to the person who sold his/her
shares.
Shares bought and sold on the JSE have no impact on the capital available to the
business.
2
, RISK:
❖ The JSE (and other stock exchanges in the world) have strict rules for companies
to list to protect investors and decrease the risk of investing in these listed
companies. Despite this, equities are still seen as a moderate to high risk
investment.
❖ Blue-chip shares are shares in high-end companies on the stock exchange
➢ risk of acquiring shares in a blue-chip company is smaller than having
shares in another company.
➢ The ROI in these blue-chip companies is usually higher than in other
companies.
❖ Investors usually take smaller risks than people speculating with shares
RETURN OF INVESTMENT (ROI)
Evaluation of ROI = two factors that contribute to the ROI
1. Increase in share price and sell at a higher price
2. Dividends
Shareholders will buy shares in a company with the expectation that:
1. The share price will increase over a period of time (capital growth)
2. Good dividends will be generated. Dividends are the profits of the company that
are divided among the shareholders.
3. A combination of the above occurs, as this usually helps to outperform inflation
Market forces (demand and supply) will determine the price of a share on the stock
market, the price is determined by how many people want the product (demand) and
how much of the product is available (supply).
MARKET FORCE FACTORS THAT WILL IMPACT THE DEMAND FOR THE SHARE & INFLUENCE THE SHARE PRICE &
IMPACT OVERALL RETURN:
3
