CHAPTER 6
INVESTMENT SECURITUES
JOHANNESBURG STOCK EXCHANGE
(JSE LIMITED)
Is a formal investment market comprising of all public companies that have been listed – allows people and
organizations to buy and sell shares in an organized and controlled manner from the listed public companies
• JSE members are known as stockbrokers
• Stockbrokers charge a brokerage fee (a fee that is paid for buying and selling shares)
- Often advise clients on which shares to buy and sell
- Done using computer programmes
• Once shares are bought buyers receive a brokers note and then a share certificate
• Price of shares change all the time – fluctuations between demand and supply
FUNCTIONS OF JSE
- Main function - provide a market in which securities can be bought and sold freely within a legal and
regulated framework
- Provides protection for investors
- Encourages short-term investment
- Encourages new investments
- Raises primary capital
- Shares are values and assessed by experts
TYPES OF INVESTMENTS
1. BUSINESS INVESTMENTS
Once a business is making profit it is important that money gets invested well so that business has ongoing funds –
choose to invest in financial institutions, government bonds or public companies
• SHORT-TERM INVESTMENTS
Enable a business to access its money within a short period of time (return on investments) – is not as good as a
longer-term investment (bank saving account) (money market account)
• LONG-TERM INVESTMENT
Business gets a better return on investment in the long-term, but they have no access to their money in the
short-term (some long-term investors pay more than others) – fixed deposit account and unit trusts
• ANGEL-FUNDING
Often wealthy entrepreneurs – offer financing for a share in the business (popular in information technology
industries) – often used at startup capital for a business and carries high risk for investors
• VENTURE CAPITAL
Funding is giving by individuals or organizations to start up or expand the business – finance is given for a share
in a business – some request management or board positions – can be applied at any stage of the business cycle
, INVESTMENT OPPORTUNITIES
FACTORS TO CONSIDER BEFORE MAKING INVESTMENT DECISIONS
Return on investment
- Refers to income from the investment
- High risk investments yield higher returns
- Generally, there is a direct link between risk and return
Risk
- Shares have a lower/medium risks over a longer period of investment
- Shares with higher risks have a larger potential for a better return on investment
- Share prices are linked to factors that investors cannot control
Taxation
- A good investment will yield good after-tax returns.
- Income tax implications must be considered in order to ensure a high net after-tax return.
- Tax rates are not necessarily the same for different investments
Investment period
- This refers to the duration of the investment which may influence the return on investment.
- The longer the investment period the higher the returns.
- The investment period will depend on an investor's personal needs
Liquidity
- An amount could be invested in a type of investment that can easily be converted to cash.
- It is used to describe the ease and speed with which investors can convert an investment into cash.
- Example: an investment in a savings account/unit trust will be easier to convert into cash than an investment
in a fixed deposit which is usually deposited for a fixed period of time.
Personal budget
- Investors can determine the amount of surplus money that can be invested.
- Investors must budget for unforeseen costs.
- Budget should provide for contingency plans/investments/savings.
Inflation rate
- People are affected by a high inflation rate, because their money/purchasing power decreases.
- The return on investment should be higher than the inflation rate.
- Inflation has a positive effect on some investments such as property/shares where the income will increase
as inflation increases.
Investment planning factors
- Examine opportunities with a history of good return.
- Divide investments between various investment options.
- The method of calculating the interest/return on investment should be considered.
Fluctuations on investment market
- Fluctuation in national and international economic trends should be considered.
- The level of volatility will determine the amount of returns.
INVESTMENT SECURITUES
JOHANNESBURG STOCK EXCHANGE
(JSE LIMITED)
Is a formal investment market comprising of all public companies that have been listed – allows people and
organizations to buy and sell shares in an organized and controlled manner from the listed public companies
• JSE members are known as stockbrokers
• Stockbrokers charge a brokerage fee (a fee that is paid for buying and selling shares)
- Often advise clients on which shares to buy and sell
- Done using computer programmes
• Once shares are bought buyers receive a brokers note and then a share certificate
• Price of shares change all the time – fluctuations between demand and supply
FUNCTIONS OF JSE
- Main function - provide a market in which securities can be bought and sold freely within a legal and
regulated framework
- Provides protection for investors
- Encourages short-term investment
- Encourages new investments
- Raises primary capital
- Shares are values and assessed by experts
TYPES OF INVESTMENTS
1. BUSINESS INVESTMENTS
Once a business is making profit it is important that money gets invested well so that business has ongoing funds –
choose to invest in financial institutions, government bonds or public companies
• SHORT-TERM INVESTMENTS
Enable a business to access its money within a short period of time (return on investments) – is not as good as a
longer-term investment (bank saving account) (money market account)
• LONG-TERM INVESTMENT
Business gets a better return on investment in the long-term, but they have no access to their money in the
short-term (some long-term investors pay more than others) – fixed deposit account and unit trusts
• ANGEL-FUNDING
Often wealthy entrepreneurs – offer financing for a share in the business (popular in information technology
industries) – often used at startup capital for a business and carries high risk for investors
• VENTURE CAPITAL
Funding is giving by individuals or organizations to start up or expand the business – finance is given for a share
in a business – some request management or board positions – can be applied at any stage of the business cycle
, INVESTMENT OPPORTUNITIES
FACTORS TO CONSIDER BEFORE MAKING INVESTMENT DECISIONS
Return on investment
- Refers to income from the investment
- High risk investments yield higher returns
- Generally, there is a direct link between risk and return
Risk
- Shares have a lower/medium risks over a longer period of investment
- Shares with higher risks have a larger potential for a better return on investment
- Share prices are linked to factors that investors cannot control
Taxation
- A good investment will yield good after-tax returns.
- Income tax implications must be considered in order to ensure a high net after-tax return.
- Tax rates are not necessarily the same for different investments
Investment period
- This refers to the duration of the investment which may influence the return on investment.
- The longer the investment period the higher the returns.
- The investment period will depend on an investor's personal needs
Liquidity
- An amount could be invested in a type of investment that can easily be converted to cash.
- It is used to describe the ease and speed with which investors can convert an investment into cash.
- Example: an investment in a savings account/unit trust will be easier to convert into cash than an investment
in a fixed deposit which is usually deposited for a fixed period of time.
Personal budget
- Investors can determine the amount of surplus money that can be invested.
- Investors must budget for unforeseen costs.
- Budget should provide for contingency plans/investments/savings.
Inflation rate
- People are affected by a high inflation rate, because their money/purchasing power decreases.
- The return on investment should be higher than the inflation rate.
- Inflation has a positive effect on some investments such as property/shares where the income will increase
as inflation increases.
Investment planning factors
- Examine opportunities with a history of good return.
- Divide investments between various investment options.
- The method of calculating the interest/return on investment should be considered.
Fluctuations on investment market
- Fluctuation in national and international economic trends should be considered.
- The level of volatility will determine the amount of returns.
