Business chapter 8 investments:
The following criteria will be used to evaluate each investment option:
Risk
ROI (return on investment)
Time frames
Risk:
A high-risk investment is expected to return a high return on investment
(ROI) if the investment is successful.
A high-risk investment could also result in a big loss if the investment is
unsuccessful.
Diversification means all eggs are not kept in one basket.
A combination of investment options is used to spread the risks over
different assets.
Return on investment (ROI):
ROI can be described as a tool used to measure the efficiency of the
investment.
It is an indicator of what the investor will get back over and above the
original investment made.
Timeframes (period of investment):
The longer the period of investment for the investor, the greater the risks
are that the investor can afford to take.
Receive dividends.
Different investment strategies:
1. Growth investment strategy:
-high risk
-Long term capital growth, rather than a monthly income
-Shares on the JSE may be considered, with blue-chip shares reducing the
risk factor somewhat.
2. Balanced investment strategy:
-medium risk
-Aim is capital growth but with some monthly income as well
-investments like a fixed deposit and investments in property with a
monthly income will be considered.
3. Defensive investment strategy:
-Low risk
, -The emphasis is on monthly income, but the investor also wants some
capital growth.
-Investments in property, money in the bank, with a much smaller
investment in equities
4. Conservative investment strategy:
-A conservative investor does not want risk
-The focus is on monthly income
-The majority of the investment will be in property and cash instruments to
generate a monthly income.
Investment options/instruments:
Equities/shares:
Definition: Equities are also known as shares in a company. Some
companies are listed on the JSE, but others are unlisted.
Options 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 towards the
capital to the business.
-The shares were bought on the JSE from a previous shareholder. The
money is not going to the business but to the person who sold his/her
share. Have no impact on the capital available to the business.
Risk: The JSE have strict rules for companies to list themselves onto the
stock exchange. Despite this, equities are still seen as a moderate to high
risk investment.
Blue-chip shares are shares in high-end companies on the stock
exchange and the risk in blue-chip shares is lower than having shares in
other companies that are listed. The ROI in blue chip shares is usually
higher than in other companies.
Return on investment (ROI): There are two factors to consider:
-increase in share price
-Dividends
Shareholders will buy shares in the company with the expectation that:
-Share price will increase over a period of time (capital growth)
-Good dividends will be generated. Dividends are the profits of a company
that are divided among the shareholders in a company and are not taxed.
The following criteria will be used to evaluate each investment option:
Risk
ROI (return on investment)
Time frames
Risk:
A high-risk investment is expected to return a high return on investment
(ROI) if the investment is successful.
A high-risk investment could also result in a big loss if the investment is
unsuccessful.
Diversification means all eggs are not kept in one basket.
A combination of investment options is used to spread the risks over
different assets.
Return on investment (ROI):
ROI can be described as a tool used to measure the efficiency of the
investment.
It is an indicator of what the investor will get back over and above the
original investment made.
Timeframes (period of investment):
The longer the period of investment for the investor, the greater the risks
are that the investor can afford to take.
Receive dividends.
Different investment strategies:
1. Growth investment strategy:
-high risk
-Long term capital growth, rather than a monthly income
-Shares on the JSE may be considered, with blue-chip shares reducing the
risk factor somewhat.
2. Balanced investment strategy:
-medium risk
-Aim is capital growth but with some monthly income as well
-investments like a fixed deposit and investments in property with a
monthly income will be considered.
3. Defensive investment strategy:
-Low risk
, -The emphasis is on monthly income, but the investor also wants some
capital growth.
-Investments in property, money in the bank, with a much smaller
investment in equities
4. Conservative investment strategy:
-A conservative investor does not want risk
-The focus is on monthly income
-The majority of the investment will be in property and cash instruments to
generate a monthly income.
Investment options/instruments:
Equities/shares:
Definition: Equities are also known as shares in a company. Some
companies are listed on the JSE, but others are unlisted.
Options 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 towards the
capital to the business.
-The shares were bought on the JSE from a previous shareholder. The
money is not going to the business but to the person who sold his/her
share. Have no impact on the capital available to the business.
Risk: The JSE have strict rules for companies to list themselves onto the
stock exchange. Despite this, equities are still seen as a moderate to high
risk investment.
Blue-chip shares are shares in high-end companies on the stock
exchange and the risk in blue-chip shares is lower than having shares in
other companies that are listed. The ROI in blue chip shares is usually
higher than in other companies.
Return on investment (ROI): There are two factors to consider:
-increase in share price
-Dividends
Shareholders will buy shares in the company with the expectation that:
-Share price will increase over a period of time (capital growth)
-Good dividends will be generated. Dividends are the profits of a company
that are divided among the shareholders in a company and are not taxed.
