UNIT 9 : INVESTMENT → SECURITIES • Different investment opportunities have
different risks attached to them.
Investment securities are an important means
• Certain shares do have a low risk over a long
of acquiring and building wealth for both an
investment period.
individual and businesses. Various investment
opportunities are available for investors to • Shares with higher risks have a greater
invest their capital. Some investors are potential for higher returns.
interested in growing their wealth. Other
investors are interested in generating additional • Investing in common shares carries a higher
income to supplement their retirement risk as the investor can lose all/part of the
earnings. It is important for investors to investment if the company is dissolved/declared
consider the risk associated with each type of bankrupt/liquidated.
investment.
Investment term
Functions of the Johannesburg Stock • The investment term refers to the duration of
Exchange (JSE) the investment from the initial date of
the functions of the JSE investment until its termination.
• Provides opportunities for financial institutions • The duration of investment can vary from
such as insurance companies to invest their short-, medium- or long-term in nature,
funds in shares. depending on the individual needs of the
investor.
• Serves as a barometer/indicator of economic
conditions in South Africa. • The investment can vary from a short-,
medium- or long-term nature, depending on the
• Keep investors informed of share prices by individual needs of the investor.
publishing the share prices daily.
• Higher returns accrue to the investor with
• Serves as a liaison between investors and long-term investments.
public companies.
• Shares are valued and assessed by experts.
Investment period Period
• Venture capital is made available on the open Short term Up to 2 years
market Medium term 2 to 5 years
Long-term More than 5 years
Factors to consider when making Inflation rate
investment decisions • Inflation refers to a general increase in the
price of goods and services over time, while the
value of money decreases as a result.
Return on investment (ROI)
• The higher the inflation rate, the lower the
• Refers to the amount of money the investor purchasing power of money.
receives in addition to the original investment
• Investors seek those investments in which the
amount.
return on investment is higher than the inflation
• The additional amount after tax is expressed rate.
as a percentage of the original investment
• The value of certain assets such as property
amount.
increases as inflation increases, thus offering
• Will be higher if the risks associated with the investors a higher rate of return.
investment are high.
• Will be lower if the risk associated with the
Taxation
investment is low.
Risk
, • A good investment will be determined by the • There is a possibility that a member will not
percentage return after payment of taxes due to be able to contribute his/her monthly savings.
SARS.
• The investment is linked to low risk, and the
• The investor must make provision for income investors' money is relatively safe
tax payable to SARS to ensure a high net after-
tax return.
Managed portfolio
• Investors should be aware that different tax
rates apply to each form of investment. • An investor has the opportunity to use a
financial advisor to manage all of his/her
Liquidity
investments in one portfolio.
• Liquidity refers to the speed with which an
• The financial advisor has full control over the
investment can be converted into cash.
investments in the investor's portfolio and can
• The easier it is to convert an investment into change investment options based on their
cash, the more liquid the investment is. performance in the market.
• The more difficult it is for an investment to be → Risk
converted into cash, the less liquid the
• The risks associated with a managed portfolio
investment is.
are lower over a longer period of time.
• An amount must be invested in a type of
• The risks associated with the investments are
investment that can be easily converted into
spread because investments are made in
cash.
various companies.
• Financial advisors prefer to invest funds in the
Types of investment opportunities and capital market.
their risk factors
Investors are advised to consider various
Business Opportunities/Venture Capital
investment opportunities in order to make an
informed decision. The choice of an investment • Investors make funds available to a
opportunity depends on individual interest and prospective business to start a business, and
circumstances. Each investment opportunity is they become co-owners of the business.
linked to certain risks that an investor should
• An investor must familiarize himself/herself
consider in advance.
with the market in which the business operates
before making the investment.
Mutual funds/Stokvel • Investing in an existing business can be
rewarding for an investor – provided the
• A stokvel is established by a small group of
investor has done research on the prevailing
people who make informal and voluntary
market conditions.
contributions to a savings fund.
→ Risk
• The stokvel allows each member to withdraw
money from the collective pool of funds for • The risks associated with this type of
personal use. investment can be high if the investor is not
familiar with the market in which the business
• The return on investment is limited due to the
will operate.
regular fund withdrawals by members.
• Entrepreneurs with limited experience may
• Members of the stokvel are encouraged to
not be able to successfully manage the
save monthly for a specific purpose.
business, causing the investor to lose part or all
→ Risk of the investment.
• Members may contribute to an illegal financial
scheme and may lose all the money they
32-day notice deposits
contribute.
different risks attached to them.
Investment securities are an important means
• Certain shares do have a low risk over a long
of acquiring and building wealth for both an
investment period.
individual and businesses. Various investment
opportunities are available for investors to • Shares with higher risks have a greater
invest their capital. Some investors are potential for higher returns.
interested in growing their wealth. Other
investors are interested in generating additional • Investing in common shares carries a higher
income to supplement their retirement risk as the investor can lose all/part of the
earnings. It is important for investors to investment if the company is dissolved/declared
consider the risk associated with each type of bankrupt/liquidated.
investment.
Investment term
Functions of the Johannesburg Stock • The investment term refers to the duration of
Exchange (JSE) the investment from the initial date of
the functions of the JSE investment until its termination.
• Provides opportunities for financial institutions • The duration of investment can vary from
such as insurance companies to invest their short-, medium- or long-term in nature,
funds in shares. depending on the individual needs of the
investor.
• Serves as a barometer/indicator of economic
conditions in South Africa. • The investment can vary from a short-,
medium- or long-term nature, depending on the
• Keep investors informed of share prices by individual needs of the investor.
publishing the share prices daily.
• Higher returns accrue to the investor with
• Serves as a liaison between investors and long-term investments.
public companies.
• Shares are valued and assessed by experts.
Investment period Period
• Venture capital is made available on the open Short term Up to 2 years
market Medium term 2 to 5 years
Long-term More than 5 years
Factors to consider when making Inflation rate
investment decisions • Inflation refers to a general increase in the
price of goods and services over time, while the
value of money decreases as a result.
Return on investment (ROI)
• The higher the inflation rate, the lower the
• Refers to the amount of money the investor purchasing power of money.
receives in addition to the original investment
• Investors seek those investments in which the
amount.
return on investment is higher than the inflation
• The additional amount after tax is expressed rate.
as a percentage of the original investment
• The value of certain assets such as property
amount.
increases as inflation increases, thus offering
• Will be higher if the risks associated with the investors a higher rate of return.
investment are high.
• Will be lower if the risk associated with the
Taxation
investment is low.
Risk
, • A good investment will be determined by the • There is a possibility that a member will not
percentage return after payment of taxes due to be able to contribute his/her monthly savings.
SARS.
• The investment is linked to low risk, and the
• The investor must make provision for income investors' money is relatively safe
tax payable to SARS to ensure a high net after-
tax return.
Managed portfolio
• Investors should be aware that different tax
rates apply to each form of investment. • An investor has the opportunity to use a
financial advisor to manage all of his/her
Liquidity
investments in one portfolio.
• Liquidity refers to the speed with which an
• The financial advisor has full control over the
investment can be converted into cash.
investments in the investor's portfolio and can
• The easier it is to convert an investment into change investment options based on their
cash, the more liquid the investment is. performance in the market.
• The more difficult it is for an investment to be → Risk
converted into cash, the less liquid the
• The risks associated with a managed portfolio
investment is.
are lower over a longer period of time.
• An amount must be invested in a type of
• The risks associated with the investments are
investment that can be easily converted into
spread because investments are made in
cash.
various companies.
• Financial advisors prefer to invest funds in the
Types of investment opportunities and capital market.
their risk factors
Investors are advised to consider various
Business Opportunities/Venture Capital
investment opportunities in order to make an
informed decision. The choice of an investment • Investors make funds available to a
opportunity depends on individual interest and prospective business to start a business, and
circumstances. Each investment opportunity is they become co-owners of the business.
linked to certain risks that an investor should
• An investor must familiarize himself/herself
consider in advance.
with the market in which the business operates
before making the investment.
Mutual funds/Stokvel • Investing in an existing business can be
rewarding for an investor – provided the
• A stokvel is established by a small group of
investor has done research on the prevailing
people who make informal and voluntary
market conditions.
contributions to a savings fund.
→ Risk
• The stokvel allows each member to withdraw
money from the collective pool of funds for • The risks associated with this type of
personal use. investment can be high if the investor is not
familiar with the market in which the business
• The return on investment is limited due to the
will operate.
regular fund withdrawals by members.
• Entrepreneurs with limited experience may
• Members of the stokvel are encouraged to
not be able to successfully manage the
save monthly for a specific purpose.
business, causing the investor to lose part or all
→ Risk of the investment.
• Members may contribute to an illegal financial
scheme and may lose all the money they
32-day notice deposits
contribute.
