CHAPTER 8 – INVESTMENTS
All investment options are evaluated on :
1. RISK
2. RETURN ON INVESTMENT
3. TIME FRAMES
RISK
A high risk investment will deliver a higher return on investment IF the investment succeeds,
but could also result in a big loss in the investment fails
Diversification –
all eggs are not kept in one basket, where a combination of investment options are used to
spread risks over different assets
RETURN ON INVESTMENT
A tool to measure the efficiency of the investment and an indicator of what the investor will
get back over and above the original investment made
TIME FRAMES
Longer the period of investment available to the investor, the greater the risks are that the
investor is able to take
Investment Strategies
1. Growth Investment Strategy
- High risk
- Aim is long term capital growth rather than monthly income
EXAMPLE: shares on the JSE (blue chip shares) which may reduce the risk
2. Balanced Investment Strategy
- Investor will accept a medium risk
- Aim is capital growth but with some monthly income
EXAMPLE: combination of fixed deposit (interest bearing investment), equities and
investments in property for rent income
, 3. Defensive Investment Strategy
- Low risk
- Aim is more on monthly income with some capital growth
EXAMPLE: investments in property, money in the bank and a small investment in equities
4. Conservative Investment Strategy
- No risk
- Focus is purely monthly income, maintaining capital amount of their investment
EXAMPLE: investment in property and cash instruments
Investment Options
1. EQUITIES/SHARES
Shares in a company listed on the JSE, where investors have access to financial performance
on the business and owns a portion of the business
NB – unlisted companies will not make their information on financial performance available
to public, only shareholders, SARS, creditors.
It is therefore impossible to evaluate whether this investment will deliver acceptable terms
2 options to become a shareholder:
- Shares were bought from the company when they were issued, thus contributing capital
to the business
- Shares were bought on the JSE from a previous shareholder and money paid does not go
to the business, but to person he sold the shares to.
NB – shares bought on JSE have no impact on capital available to business
RISK
Seen as a moderate to high risk investment
The JSE have strict rules for companies to list on the stock exchange which protects the
investor and decreases the risk
Blue chip shares ( shares in high end companies on the stock exchange) are a smaller risk
for the investor to acquire shares than in another company, where the ROI is usually
higher than in other companies
Smaller risk than people speculating with shares
All investment options are evaluated on :
1. RISK
2. RETURN ON INVESTMENT
3. TIME FRAMES
RISK
A high risk investment will deliver a higher return on investment IF the investment succeeds,
but could also result in a big loss in the investment fails
Diversification –
all eggs are not kept in one basket, where a combination of investment options are used to
spread risks over different assets
RETURN ON INVESTMENT
A tool to measure the efficiency of the investment and an indicator of what the investor will
get back over and above the original investment made
TIME FRAMES
Longer the period of investment available to the investor, the greater the risks are that the
investor is able to take
Investment Strategies
1. Growth Investment Strategy
- High risk
- Aim is long term capital growth rather than monthly income
EXAMPLE: shares on the JSE (blue chip shares) which may reduce the risk
2. Balanced Investment Strategy
- Investor will accept a medium risk
- Aim is capital growth but with some monthly income
EXAMPLE: combination of fixed deposit (interest bearing investment), equities and
investments in property for rent income
, 3. Defensive Investment Strategy
- Low risk
- Aim is more on monthly income with some capital growth
EXAMPLE: investments in property, money in the bank and a small investment in equities
4. Conservative Investment Strategy
- No risk
- Focus is purely monthly income, maintaining capital amount of their investment
EXAMPLE: investment in property and cash instruments
Investment Options
1. EQUITIES/SHARES
Shares in a company listed on the JSE, where investors have access to financial performance
on the business and owns a portion of the business
NB – unlisted companies will not make their information on financial performance available
to public, only shareholders, SARS, creditors.
It is therefore impossible to evaluate whether this investment will deliver acceptable terms
2 options to become a shareholder:
- Shares were bought from the company when they were issued, thus contributing capital
to the business
- Shares were bought on the JSE from a previous shareholder and money paid does not go
to the business, but to person he sold the shares to.
NB – shares bought on JSE have no impact on capital available to business
RISK
Seen as a moderate to high risk investment
The JSE have strict rules for companies to list on the stock exchange which protects the
investor and decreases the risk
Blue chip shares ( shares in high end companies on the stock exchange) are a smaller risk
for the investor to acquire shares than in another company, where the ROI is usually
higher than in other companies
Smaller risk than people speculating with shares
