Investment
18 June 2023 5:17 PM
Definition: money invested over a period of time, with an expectation of profit, and it has much to
do with planning for the future.
• Main aim: to make money -> capital growth
• Amount invested = capital contribution
• Why do many people struggle?
► They invest in dubious or risky projects
► no too little about themselves/ products/ asset classes in which they invest
• Rule: the bigger the risk you take = greater possible reward or return (growth on capital) you
can expect
• the safer your investment and the smaller the risk = smaller the possibility of a higher return
• Major asset classes and risk:
► Cash-low risk
► property -moderate to high risk
► bonds-moderate risk
► Equities-high risk
• To find best suited option for potential investor, an investment risk profile is completed
• risk profile helps create an understanding of the investor's tolerance for risk and whether the
expected return for the investment is satisfactory
• the following criteria will be used to evaluate each of their investment options:
Risk
return on investment
time frame
A. Risk:
• the bigger the risk you take, the greater possible reward or return you can expect
• A high risk investment is expected to deliver a higher return on investment if the investment
succeeds
• a high risk investment could also result in a big loss if the investment fails
• The investor has the option to choose the degree of risk relative to the most suitable
investment option for him or her at that point in time
B. Return on investment:
• A Tool to measure the efficiency of their investment
• it is an indicator of what the investor will get back over and above the original investment
made
C. Timeline (period of investment):
• The longer the period of investment available to their investor, the greater the risks are that
the investor can afford to take
Diversification:
• A combination of investment options - investment risk is spread between the various asset
classes
• most investment plans: combination of four major asset classes because of benefits of
diversification
• greater chance of higher returns over long term than those who invest in only conservative
investments such as cash
• combining growth potential of equities with higher income of bonds and stability of money
market funds, investors are employing sound strategy to control the balance of risk and
reward their portfolio
Investment Page 1
, reward their portfolio
investment strategies:
A. Growth investment strategy:
• High risk
• long term capital growth, no monthly income
• shares on the JSE may be considered, with blue chip shares reducing their risk factor
B. Balanced strategy:
• The investor is prepared to accept medium risk
• the aim is capital growth, but with some monthly income as well
• a combination of equities and some interest bearing investment like a fixed deposit will be
considered or investment in property with a monthly rent income
C. Defensive strategy:
• Low risk
• the emphasis is more on a monthly income, but the investor wants some capital growth as
well
• investments in property and money in the bank, with a much smaller investment in equities
D. Conservative strategy:
• A conservative investor does not want to risk= no risk
• the focus is on a monthly income, while preferably maintaining the capital amount of the
investment
• the majority of the investment will be in property and cash instruments to generate the
monthly income. Of course, investment in the correct property will lead to capital growth
Investment options/instruments:
1. Equity/shares:
• Equities are also known as shares in the company
• known as shares in a company listed on the JSE
• some companies are listed on the JSE Ltd, but other companies are unlisted
• when we consider equities or shares, we are going to look at those in listed companies,
because information on the shares performance is regularly available
• if the company is unlisted, it will not make information on the financial performance of the
business available to anybody but shareholders, banks, creditors and SARS -not to the general
public
• without this financial information, it will be impossible to determine the return on investment
and if it is satisfactory
• the owners of shares each owner portion of the business. There are two options/methods to
become a shareholder in a company listed on the JSE:
► Shares were bought from the company when shares were issued for the first time, thus the
person who bought the shares contributes capital to the business
► 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 or her shares. Shares bought and
sold on the JSE have no impact on the capital available to the business
A. Risk:
• The JSE has strict rules for companies who are listed on Stock Exchange to protect investors
and decrease risk of investing in listed companies.
• Equities are moderate to high risk investment
• Blue chip shares are shares in high end companies on the Stock Exchange and the risk of
acquiring shares in a blue chip company is smaller than having shares in another company. The
return on investment in these blue chip companies is usually higher than in other companies
Investment Page 2
18 June 2023 5:17 PM
Definition: money invested over a period of time, with an expectation of profit, and it has much to
do with planning for the future.
• Main aim: to make money -> capital growth
• Amount invested = capital contribution
• Why do many people struggle?
► They invest in dubious or risky projects
► no too little about themselves/ products/ asset classes in which they invest
• Rule: the bigger the risk you take = greater possible reward or return (growth on capital) you
can expect
• the safer your investment and the smaller the risk = smaller the possibility of a higher return
• Major asset classes and risk:
► Cash-low risk
► property -moderate to high risk
► bonds-moderate risk
► Equities-high risk
• To find best suited option for potential investor, an investment risk profile is completed
• risk profile helps create an understanding of the investor's tolerance for risk and whether the
expected return for the investment is satisfactory
• the following criteria will be used to evaluate each of their investment options:
Risk
return on investment
time frame
A. Risk:
• the bigger the risk you take, the greater possible reward or return you can expect
• A high risk investment is expected to deliver a higher return on investment if the investment
succeeds
• a high risk investment could also result in a big loss if the investment fails
• The investor has the option to choose the degree of risk relative to the most suitable
investment option for him or her at that point in time
B. Return on investment:
• A Tool to measure the efficiency of their investment
• it is an indicator of what the investor will get back over and above the original investment
made
C. Timeline (period of investment):
• The longer the period of investment available to their investor, the greater the risks are that
the investor can afford to take
Diversification:
• A combination of investment options - investment risk is spread between the various asset
classes
• most investment plans: combination of four major asset classes because of benefits of
diversification
• greater chance of higher returns over long term than those who invest in only conservative
investments such as cash
• combining growth potential of equities with higher income of bonds and stability of money
market funds, investors are employing sound strategy to control the balance of risk and
reward their portfolio
Investment Page 1
, reward their portfolio
investment strategies:
A. Growth investment strategy:
• High risk
• long term capital growth, no monthly income
• shares on the JSE may be considered, with blue chip shares reducing their risk factor
B. Balanced strategy:
• The investor is prepared to accept medium risk
• the aim is capital growth, but with some monthly income as well
• a combination of equities and some interest bearing investment like a fixed deposit will be
considered or investment in property with a monthly rent income
C. Defensive strategy:
• Low risk
• the emphasis is more on a monthly income, but the investor wants some capital growth as
well
• investments in property and money in the bank, with a much smaller investment in equities
D. Conservative strategy:
• A conservative investor does not want to risk= no risk
• the focus is on a monthly income, while preferably maintaining the capital amount of the
investment
• the majority of the investment will be in property and cash instruments to generate the
monthly income. Of course, investment in the correct property will lead to capital growth
Investment options/instruments:
1. Equity/shares:
• Equities are also known as shares in the company
• known as shares in a company listed on the JSE
• some companies are listed on the JSE Ltd, but other companies are unlisted
• when we consider equities or shares, we are going to look at those in listed companies,
because information on the shares performance is regularly available
• if the company is unlisted, it will not make information on the financial performance of the
business available to anybody but shareholders, banks, creditors and SARS -not to the general
public
• without this financial information, it will be impossible to determine the return on investment
and if it is satisfactory
• the owners of shares each owner portion of the business. There are two options/methods to
become a shareholder in a company listed on the JSE:
► Shares were bought from the company when shares were issued for the first time, thus the
person who bought the shares contributes capital to the business
► 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 or her shares. Shares bought and
sold on the JSE have no impact on the capital available to the business
A. Risk:
• The JSE has strict rules for companies who are listed on Stock Exchange to protect investors
and decrease risk of investing in listed companies.
• Equities are moderate to high risk investment
• Blue chip shares are shares in high end companies on the Stock Exchange and the risk of
acquiring shares in a blue chip company is smaller than having shares in another company. The
return on investment in these blue chip companies is usually higher than in other companies
Investment Page 2
