Investment Strategies

• Higher risk investments typically offer higher potential returns, while lower risk investments offer lower potential returns.
• Diversification, which involves spreading investments across different options, is a key strategy to reduce overall risk.

Return on Investment (ROI)

• ROI measures the efficiency of an investment in generating profit.
• ROI is the profit earned above the original investment.

Investment Time Frames

• Short-term investments generally involve lower risk and lower returns.
• Medium-term investments strike a balance with moderate risk and reasonable returns.
• Long-term investments involve higher risk but offer the potential for higher returns.

Growth Investment Strategy

• Focuses on long-term capital growth.
• Often involves shares on the stock exchange (JSE).
• Considered a high-risk strategy.

Balanced Investment Strategy

• Aims for a mix of capital growth and regular income.
• Medium risk
• Combines equities with interest-bearing investments.

Defensive Investment Strategy

• Focuses on preserving capital and generating monthly income.
• Low risk
• Typically includes small investments in equities, unit trusts, and government bonds.

Conservative Investment Strategy

• Aims to yield monthly income with almost no risk
• The majority of the investment is in property and cash instruments

Equities / Shares

• Buying shares means owning a portion of a company.
• Shares can be purchased directly or from existing shareholders.
• Companies are listed on the JSE, which provides financial information to evaluate potential returns.
• Shareholders can earn money through dividends and capital gains.

Risk Associated with Shares

• Strict rules are in place to protect investors and decrease risk.
• Blue-chip shares from high-end companies listed on the stock exchange have lower risk.
• Investors face smaller risks compared to speculators, who try to time the market.

Return on Investment (Shares)

• Shareholders buy shares hoping for share price appreciation, good dividends, or a combination of both to outperform inflation.
• Share prices on the stock market are determined by market forces (supply and demand).

Factors Influencing the Demand and Supply of Shares

• Overall confidence in the economy.
• Government policies and new legislation.
• Industry performance (both positive and negative publicity).
• Financial performance (liquidity and solvency).
• Management quality and public confidence in management teams.
• Involvement in corporate social responsibility (CSR).
• Legal issues such as price fixing.
• Media coverage.

Debentures

• Debentures, also known as bonds, are IOUs sold by businesses to raise capital.
• Debenture holders receive interest on the amount they invested.

Types of Debentures

• Redeemable debentures are paid back at a fixed time.
• Irredeemable debentures have no fixed repayment date.
• Convertible debentures can be converted into shares.

Risks Associated with Debentures

• If the company fails, the debt may not be repaid.
• Interest payments may not keep up with inflation, depending on whether the rate is fixed or variable.
• Unsecured financial instruments carry risk of bankruptcy.
• Risk level varies; higher risk for shares than bank deposits, determined by financial strength

Return on Investment (Debentures)

• Debentures offer a stream of interest income but no capital growth.
• ROI should beat inflation.
• The company issuing the debentures is legally obligated to pay interest.

Retirement Annuities & Pension Funds

• Retirement annuities provide income after retirement.
• Pension funds involve employees contributing to a managed fund which should exceed inflation,and contributions are deducted from salary.

Risks Associated with Retirement Funds

• Risk depends on how and where administrators invest contributions.

Reasons for Financial Insecurity at Retirement

• Starting contributions late.
• Longer lifespans requiring extended provision.
• Increased healthcare costs with age.
• Payouts when changing jobs, reducing the overall provision.

Return on Investment (Retirement Funds)

• Returns are not guaranteed.
• Financial instruments have administrative costs and management fees, which reduce ROI.

Endowments

• Endowments are long-term savings policies that pay out after a set period or upon death.

Risks Associated with Endowments

• Investors choose their risk profile (high, medium, or low).
• Contribution waivers available for monthly contributions ensure security.

Return on Investment (Endowments)

• Returns depend on the chosen risk profile.
• Management and admin fees are deducted from savings.

Offshore Investments

• Offshore investments involve investing in foreign markets.

Risks and Returns of Offshore Investments

• Currency exchange rate fluctuations can impact returns.
• Potentially higher returns are possible.
• Diversification benefits are provided.

Unit Trusts

• Unit Trusts are a 'basket of shares' that trade on the stock exchange.
• They are diversified over various industries on the JSE
• Investors indicate their risk profile, the fund is managed by a fund manager, and investments can be made with a lump sum, monthly contributions, or both.

Risks Associated with Unit Trusts

• Equity funds have higher risk as funds are invested in shares
• Stable funds reduce risk by diversifying investments.

Return on Investment (Unit Trusts)

• Returns can outperform inflation.
• Returns depend on the fund manager’s performance.

Collectibles

• Collectibles include items like antiques, art, and rare coins.

Risks Associated with Collectibles

• Expertise and market knowledge are required.
• Physical damage can decrease value.

Return on Investment (Collectibles)

• Value may increase over time, but it isn’t guaranteed.
• No monthly income is generated.

Fixed Property

• Involves buying property to sell later or earn rental income.

Risks Associated with Fixed Property

• Property values can decrease.
• High maintenance and tax costs, including Capital Gains Tax, are involved.
• Location significantly impacts value.

Return on Investment (Fixed Property)

• Rental income can be earned.
• Property prices can increase over time.

Fixed Deposits & Money Market Accounts

• Money is invested in a bank for a fixed period at a fixed rate.

Risks

• Low, due to investment in the bank (covered in the event of liquidation)
• Interest rate varies from bank to bank
• Returns
• Cumulative interest is earned on the original deposit and reinvested interest
• ROI is generally low

Money Market Accounts

• These are short-term savings accounts with slightly higher interest.

Risk and Return

Low, but returns may not keep up with inflation. Interest rates outperform normal savings accounts, attracting short-term investors.

Investments should be chosen based on:

• Risk tolerance (how much risk you can handle).
• Time frame (how long you can invest).
• Financial goals (growth, income, or security).
• A diversified portfolio reduces risk and balances returns.