Investment – Chapter
8
Different investment opportunities available, criteria used to determine most suitable investment option required at a particular point in time.
Criteria used to evaluate each of invest options:
- Risk
- Return on investment
- Time frames
, A. Risk:
High risk investment expected to deliver a higher return on investment IF investment succeeds. High risk investment also results in big loss if
investment fails.
Further idea relating to risk is concept of diversification. Diversification means all eggs are not kept in one basket. Consequently, not ONE of
investment vehicles (options) below used to hold all reserves, but rather COMBINATION of these investment options used to spread risks over
different assets.
Investor has option to choose degree of risk relative to most suitable investment option for them at that point in time.
B. Return on Investment (ROI)
Tool to measure efficiency of investment. Indicator of what investor will get back over, and above original investment made
C. Timelines (period of investment):
Longer period investment available to investor, greater risks that investor can afford to take. Person cannot afford to take too many risks regarding
their investments
Different investment strategies include:
Growth Investment - High risk
Strategy - Long-term capital growth, rather than monthly income
- Shares on JSE may be considered, with Blue-chip shares reducing the risk factor somewhat
Balanced Investment - Investor prepared to accept medium risk
Strategy - Aim is capital growth, but some monthly income as well
- Combination of equities + some interest-bearing investment like fixed deposit will be considered or investment in property
with monthly rent income
Defensive Investment - Low risk
Strategy - Emphasis more on monthly income, but investor wants some capital growth as well
- Investments in property + money in bank, with much smaller investment in equities
Conservative Investment - Conservative investor does not want risk
Strategy - Focus on monthly income, while preferably maintaining capital amount of investment
- Majority of investment in property + cash instruments to generate monthly income. Investment in correct property will lead
to capital growth
8
Different investment opportunities available, criteria used to determine most suitable investment option required at a particular point in time.
Criteria used to evaluate each of invest options:
- Risk
- Return on investment
- Time frames
, A. Risk:
High risk investment expected to deliver a higher return on investment IF investment succeeds. High risk investment also results in big loss if
investment fails.
Further idea relating to risk is concept of diversification. Diversification means all eggs are not kept in one basket. Consequently, not ONE of
investment vehicles (options) below used to hold all reserves, but rather COMBINATION of these investment options used to spread risks over
different assets.
Investor has option to choose degree of risk relative to most suitable investment option for them at that point in time.
B. Return on Investment (ROI)
Tool to measure efficiency of investment. Indicator of what investor will get back over, and above original investment made
C. Timelines (period of investment):
Longer period investment available to investor, greater risks that investor can afford to take. Person cannot afford to take too many risks regarding
their investments
Different investment strategies include:
Growth Investment - High risk
Strategy - Long-term capital growth, rather than monthly income
- Shares on JSE may be considered, with Blue-chip shares reducing the risk factor somewhat
Balanced Investment - Investor prepared to accept medium risk
Strategy - Aim is capital growth, but some monthly income as well
- Combination of equities + some interest-bearing investment like fixed deposit will be considered or investment in property
with monthly rent income
Defensive Investment - Low risk
Strategy - Emphasis more on monthly income, but investor wants some capital growth as well
- Investments in property + money in bank, with much smaller investment in equities
Conservative Investment - Conservative investor does not want risk
Strategy - Focus on monthly income, while preferably maintaining capital amount of investment
- Majority of investment in property + cash instruments to generate monthly income. Investment in correct property will lead
to capital growth
