Investment:
Risk:
High Risk investment is expected to deliver a higher return on investment if the
investment succeeds however it could also result into a huge loss if the investment
fails.
Diversification: a combination of the investment options is used to spread risks over
different assets.
Return on Investment (ROI):
A tool to measure the efficiency of the investment. An indicator of what thee investor
will get back.
Timeframe:
The longer the period of investment available to the investor the greater the risks that
the investor can afford to take.
Investment strategies:
Growth Investment Strategy:
- High risk
- Long term capital growth
- Shares on the JSE. Blue chips reducing the risk factor
Balanced Investment Strategy:
- Medium risk
- Capital growth with some monthly income
- A combination of equities and some interest-bearing investment (fixed
deposit, property with monthly rent)
Defensive Investment Strategy:
- Low Risk
- Emphasis on monthly income, some capital growth
- Investments in property and money in the bank
Conservative Investment Strategy:
- Does not want Risk
- Monthly income – maintaining the capital amount of investment
- Property and Cash instruments
Investment Options/ Instruments:
Equities:
- Shares in a company
- The owners of shares each own a portion on the business
- Shares were bought from the company
, - Shares bought on the JSE from a previous shareholder – money paid is not
going to the business – no impact on the capital available to the business.
Risk:
- JSE has strict rules for companies to list on the stock exchange to protect
investors and decrease the risk of investing in those listed companies.
- Moderate to high risk
- Blue-chip shares – high end companies > risk is smaller. ROI is higher than
other companies
ROI:
- Two factors that contribute: Increase in share prices and dividends
- Share price will increase over a period of time
- Good dividends will be generated > profit of the company divided amongst the
shareholders, not taxed in the hands of the shareholder in South Africa.
- Combination of all the above helps to outperform inflation.
- Level of confidence in the state of the economy
- Government policies or new legislation will impact on the overall confidence in
the economy of the country and therefore the share prices.
- Industry performance will affect all the companies listed in that industry
- Financial performance of the business
- Management and the public’s confidence in the management team
- Social issues surrounding the company
- Legal issues such as pending lawsuits or allegations.
- Media coverage increases public awareness.
Timeframe:
- no short-term need to see huge capital gains
- blue-chip shares there will be capital growth in the long term and dividends
earned from the share portfolio are often used to buy more blue-chip shares.
Debentures:
- sometimes called bonds
- a letter of credit, an IOU that a business sells in order to raise borrowed
capital for large projects.
- Not secured by specific assets
- Receive interest on the amount of the debenture
- Can sell the debenture at any stage
- Types of debenture
A redeemable debenture is repayable on a predetermined date
An irredeemable debenture is never paid back by the company but will last
indefinitely with the debenture holder getting interest.
A convertible debenture will be converted into shares at a predetermined date
in the future.
Risk:
High Risk investment is expected to deliver a higher return on investment if the
investment succeeds however it could also result into a huge loss if the investment
fails.
Diversification: a combination of the investment options is used to spread risks over
different assets.
Return on Investment (ROI):
A tool to measure the efficiency of the investment. An indicator of what thee investor
will get back.
Timeframe:
The longer the period of investment available to the investor the greater the risks that
the investor can afford to take.
Investment strategies:
Growth Investment Strategy:
- High risk
- Long term capital growth
- Shares on the JSE. Blue chips reducing the risk factor
Balanced Investment Strategy:
- Medium risk
- Capital growth with some monthly income
- A combination of equities and some interest-bearing investment (fixed
deposit, property with monthly rent)
Defensive Investment Strategy:
- Low Risk
- Emphasis on monthly income, some capital growth
- Investments in property and money in the bank
Conservative Investment Strategy:
- Does not want Risk
- Monthly income – maintaining the capital amount of investment
- Property and Cash instruments
Investment Options/ Instruments:
Equities:
- Shares in a company
- The owners of shares each own a portion on the business
- Shares were bought from the company
, - Shares bought on the JSE from a previous shareholder – money paid is not
going to the business – no impact on the capital available to the business.
Risk:
- JSE has strict rules for companies to list on the stock exchange to protect
investors and decrease the risk of investing in those listed companies.
- Moderate to high risk
- Blue-chip shares – high end companies > risk is smaller. ROI is higher than
other companies
ROI:
- Two factors that contribute: Increase in share prices and dividends
- Share price will increase over a period of time
- Good dividends will be generated > profit of the company divided amongst the
shareholders, not taxed in the hands of the shareholder in South Africa.
- Combination of all the above helps to outperform inflation.
- Level of confidence in the state of the economy
- Government policies or new legislation will impact on the overall confidence in
the economy of the country and therefore the share prices.
- Industry performance will affect all the companies listed in that industry
- Financial performance of the business
- Management and the public’s confidence in the management team
- Social issues surrounding the company
- Legal issues such as pending lawsuits or allegations.
- Media coverage increases public awareness.
Timeframe:
- no short-term need to see huge capital gains
- blue-chip shares there will be capital growth in the long term and dividends
earned from the share portfolio are often used to buy more blue-chip shares.
Debentures:
- sometimes called bonds
- a letter of credit, an IOU that a business sells in order to raise borrowed
capital for large projects.
- Not secured by specific assets
- Receive interest on the amount of the debenture
- Can sell the debenture at any stage
- Types of debenture
A redeemable debenture is repayable on a predetermined date
An irredeemable debenture is never paid back by the company but will last
indefinitely with the debenture holder getting interest.
A convertible debenture will be converted into shares at a predetermined date
in the future.
