Investment Flashcards
Growth Stratergy
-High Risk
-Long term capital growth
-JSE shares (Blue Chip)
Balanced Stratergy
-Medium Risk
-Capital growth, some monthly income
-Equities, Interest bearing investments, Property (Rent Income)
Defensive Strategy
-Low Risk
-Monthly Income, some capital growth
-Property, Money in bank, Less equities
Conservative Strategy
-No risk
-Monthly Income
-Property, Cash Instruments
Equities/Shares
Description: If listed, listed on the JSE (Share performance is available to the public)
Risk:
-High risk
-JSE enforces strict rules, reducing risk
-Blue-chip shares=lower risk
ROI:
-Increase in share price
-Dividends (not taxed)
Time Frame:
-Investing= long term (capital growth, dividends)
-Speculating= Short term (share price)
Factors impacting the demand of shares on the JSE
-Level of confidence in the economy
-Government Policies
-Industry Performance
-Financial Performance
-Management
-Social Issues of company
-Legal Issues
-Media Coverage
Debentures (bonds)
Description: A letter of credit sold by the business, to raise borrowed capital. Debentures can be sold on the JSE
Types: Redeemable- repayable on set date. Irredeemable- lasts forever, interest is earned. Convertible- converted into shares on set date
Risk:
-Medium-high risk
-Fixed interest rate, but can be Link at prime
-Business could go bankrupt
ROI:
-Interest earned
-No capital growth
-Higher risk= higher interest rates
-Interest income is taxable
Timeframe:
-Long-term
Retirement Annuities, pension funds
RAs: Provide income after retirement. Paid out in lump sum + monthly payments.
PF: All employees belonging to same pension fund pool contributions. Administrator invests contributions in-order to grow capital. Pension fund deducted from salaries before tax.
Risk:
-Dependent on administrators
-Living longer means, RA must cover for longer and more money is used for health care
-Loss of benefits after retirement causes extra expenses
ROI:
-Dependent on investment manager
-No guarantee
-Administrative costs
Timeframe:
-Long-term
Endowments
Description: Long term saving in the form of a lump sum or monthly installments.
Risk:
-Investor can choose risk profile
-Contribution Waiver- Insurer will cover monthly installments if the insured become ill/disabled
ROI:
-Depend on risk profile
-Admin fees reduce ROI
Timeframe:
Long-term (5-10 years)
Offshore Investments
Description: Investments in international business and currency
Risk:
-High risk
-Diversification- reduces risk
ROI:
-Stronger exchange rates make for better ROI
-Better investment opportunities
Timeframe:
-Long/Short term
Unit Trust
Description: Basket of shares which can be invested diversely across the JSE and can be bought with a lump sum or monthly payments.
Risk:
-Investor decides on risk profile
ROI:
-Outperform inflation over 3-5 years
-ROI will depend on risk profile
Timeframe:
-Medium-Long term
Collectibles
Description: Physical items (e.g. art)
Risk:
-High level of knowledge and expertise necessary
-Damage will diminish value
ROI:
-Value can consistently increase over time
-But no monthly income
Timeframe:
-Long-term
Fixed Deposits
Description: Opened with bank with fixed amount of money invested for a fixed amount of time. Withdrawal can only occur at maturity date or with the death of the investor.
Risk:
-Low risk (bank could liquidate- very rare)
ROI:
-Low ROI
-Interest increases as time and amount increases
Timeframe:
-Long-term
Money Market Account
Description: Similar to savings account, but money can be withdrawn easier.
Risk:
-Low-risk
ROI
-Low ROI
-Better interest than savings account
Timeframe:
-Short-term
Fixed Property
Description: Residential or commercial land and buildings
Risk:
-Area, Economy, Capital Gains Tax
ROI:
-Good ROI
-Capital earned off of rent
-Capital earned off of increased value of property
Timeframe:
-Long-term
