Investments
▪ Saving: A postponement of expenditure. Keep money to pay for something at a later stage.
▪ Investment: Putting money aside with the purpose to let it grow.
▪ Capital growth: Money is invested at an interest rate higher than inflation rate.
Investment strategies
▪ Conservative investment strategy: Very low risk. Focus on safe options.
▪ Defensive investment strategy: Stable growth of capital value.
▪ Balanced investment strategy: Moderate level of risk.
▪ Growth investment strategy: High risk level.
Factors affecting investment strategy
▪ Individual risk profile
o Investment risk
✓ The higher the potential return on investment, the higher the potential risk
of suffering a loss.
✓ Volatile: More risky
o Personal risk tolerance
✓ The amount of risk that the investor can afford to take.
✓ Objective considerations: The investor’s age and disposable income.
✓ Subjective considerations: Investor’s investment experience and the
reaction to market influences.
✓ Diversification is strongly linked to risk. This means you spread the
investment risk between various asset classes; e.g. bonds, property and
equity.
▪ Liquidity required from investment
o Enough cash must be kept available to pay for emergency expenses.
o The longer the term, the higher the yield/ return.
▪ Effects of taxation on the investment
o Investors have to calculate the after-tax return of an investment.
o SA investors must pay 20% Capital Gains Tax (CGT) on their earnings from
investments.
o Equity investments are subject to Dividends Tax of 15% on the dividend earned.
▪ Inflation
o Refers to the decline in purchasing power of money.
Criteria used to choose an investment option
▪ Risk: High risk is associate with high returns and low risk with low returns.
▪ Return on Investment (ROI): Income and capital growth.
▪ Timelines: Short-term or long-term investment.
Business Studies Investments | 1
▪ Saving: A postponement of expenditure. Keep money to pay for something at a later stage.
▪ Investment: Putting money aside with the purpose to let it grow.
▪ Capital growth: Money is invested at an interest rate higher than inflation rate.
Investment strategies
▪ Conservative investment strategy: Very low risk. Focus on safe options.
▪ Defensive investment strategy: Stable growth of capital value.
▪ Balanced investment strategy: Moderate level of risk.
▪ Growth investment strategy: High risk level.
Factors affecting investment strategy
▪ Individual risk profile
o Investment risk
✓ The higher the potential return on investment, the higher the potential risk
of suffering a loss.
✓ Volatile: More risky
o Personal risk tolerance
✓ The amount of risk that the investor can afford to take.
✓ Objective considerations: The investor’s age and disposable income.
✓ Subjective considerations: Investor’s investment experience and the
reaction to market influences.
✓ Diversification is strongly linked to risk. This means you spread the
investment risk between various asset classes; e.g. bonds, property and
equity.
▪ Liquidity required from investment
o Enough cash must be kept available to pay for emergency expenses.
o The longer the term, the higher the yield/ return.
▪ Effects of taxation on the investment
o Investors have to calculate the after-tax return of an investment.
o SA investors must pay 20% Capital Gains Tax (CGT) on their earnings from
investments.
o Equity investments are subject to Dividends Tax of 15% on the dividend earned.
▪ Inflation
o Refers to the decline in purchasing power of money.
Criteria used to choose an investment option
▪ Risk: High risk is associate with high returns and low risk with low returns.
▪ Return on Investment (ROI): Income and capital growth.
▪ Timelines: Short-term or long-term investment.
Business Studies Investments | 1
