INVESTMENT Flashcards
What is the criteria for risk
- risk, ROI, time frame
the growth investment strategy
- high risk
-long term capital growth, rather than a monthly income - shares in the JSE may be considered, with blue chip shares reducing the risk factor somewhat
Balanced investment strategy
- investor is prepared to accept medium risk
- aim is capital growth w some monthly income
- a combination of equities and some interest bearing investment like a fixed deposit will be considered or investment in property w a monthly rent income
Defensive investment strategy
- low risk
- emphasis is more on monthly income but investor wants some capital growth as well
- investments in property and money in the bank with much smaller investments in equities
Conservative investment strategy
- limited risk
- focus on monthly income while maintaining capital amount of the investment
- majority of the investment will be in property and cash instruments to generate monthly income should lead to capital growth
Eg of investment options
- Equities
- Debentures
- Retirement annuities
- Endowments
- Offshore investment
- Unit trusts
- Collectibles
- Notice deposit
- Fixed property
Explain equities/ shares
- share is a part of a company which means shareholders are part owners in a company
- stock markets like JSE provide a market for dealing in listed shares
- Prices for these shaded is based on supply and demand
Equities - ROI, RISK TIME
- risk: JSE has strict rules for companies to list on JSE - protects investors > despite this there is still moderate to high risk. - blue chip shares = less risk + higher ROI
- ROI: based on 2 factors increase in share price and dividends - market forces - supply and demand
- time frame: some prefer to invest in shares with no short term need to see large capital gains. Some buy in companies that will have significant increase and then sell to make a profit
Explain debenture
IOU - sometimes called bonds - usually not secured by specific assets.
3 types - redeemable, irredeemable, convertible
Debentures RISK ROI TIME
Risk: - when debenture is sold it’s fixed interest rate
- debentures are usually unsecured which means risk is linked to financial position
- it carries higher risk than investments at banks - lower risk than a investment in shares.
ROI: - no capital growth just steady stream of interest
TIME: - long term
Explain retirement annuities and pension funds
- policy that aims to provide and income to the person when they reach a certain age
pension and annuities RISK ROI TIME
RISK: people wait too long to start a pension fund - inflation and increase in expense as you get older in things like health care
ROI: determined by fund management and there’s not definite guarantee
TIME: depending on no. of years you contribute will affect the value you will receive
Explain endowment
Form of long term saving - you will get full amount when the predetermined period is up
Endowments RISK ROI TIME
RISK: you’re able to choose the risk profile you would like. If the investor has chosen monthly contributions they can take a contribution waver which will cover the investor in case of injury or disease if they are now unable to contribute - this is risk management
ROI: dependant on risk profile chosen + there are management and admin fees that will be deducted this will reduce ROI
TIME: 5-10 years - long term savings plan
Explain offshore investments
- investing money into a foreign country for higher return and greater diversification
Offshore RISK ROI TIME
RISK + ROI: -
TIME: The only limitation in terms of time is the amount of money that may be taken out yearly. They can be either long term or short term options
Explain unit trusts
- can be described as a basket of shares that is trading on the stock exchange
- investor indicates the risk profile
- these unit trusts are then managed by a fund manager
- unit trusts can be diversified over the JSE - buyer decides which options they choose
- can be lump sum or monthly contributions or a combination of the 2
Unit trusts ROI RISK TIME
RISK: options - high risk equity fund where all funds are invested in shares. Lower risk where funds are diversified with equities, internal markets and money market
ROI: rate if return is dependent in risk option chosen - a good unit trust will outperform inflation over 3-5 years
TIME: medium to long term investment
Explain collectibles
- items like coins, antiques, stamps and jewellery
Collectibles RISK ROI TIME
RISK: need high level of expertise- any damage will completely diminish value
ROI: if authentic the article will increase over time - there’s no monthly income
TIME: usually shows growth over long periods of time,
Name 2 types of notice deposits
Fixed and money market
Explain fixed deposits
Fixed amount of money is invested at bank for predetermined time wil interest that is either fixed or changed as the prime rate changes
- longer term investment option
Fixed deposit RISK ROI TIME
Risk: low risk unless bank is liquidated
ROI: low return on investment but very low risk
TIME: 10 + years
Explain money market
Short term investment- money is invested indefinitely - investor will just need a 32 day notice for bank to withdraw
