1) JSE and investment decisions

• Functions of the Johannesburg Securities Exchange (JSE)

  • Acts as link between investors and public companies.
  • Shares are valued and assessed by experts.
  • Venture capital market is made available on the open market.
• Factors that should be considered when making an investment decision

  Return on investment

  • Refers to amount of money the investor gets in addition to original investment amount.
  • Will be lower if the risk involved in the investment is low (vice versa if high).
  • Additional amount after tax is expressed as percentage of original investment amount.
• Factors that should be considered when making an investment decision

  Risk

  • Shares with higher risks have a low risk over an extended investment period.
  • Certain shares do have a low risk over an extended investment period.
  • Risk linked to investment opportunities refers to doubt that exists regarding extent of any gains/ losses that an investor could make.
• Factors that should be considered when making an investment decision

  Investment period

  • Higher returns accrue to the investor with long-term investments.
  • Choice of investment period will depend on personal circumstances of investor.
  • Investment period refers to duration of investment from initial date of investment until its termination.
• Factors that should be considered when making an investment decision

  Inflation rate

  • Refers to general increase in the price of goods and service over time, while the value of money decreases as result thereof.
  • Higher the inflation rate, the lower the purchasing power of money.
  • Investors seek those investments in which the return of investment is higher than the inflation rate.
• Factors that should be considered when making an investment decision

  Taxation

  • Good investment will be determined by percentage of return after payment of taxes due to SARS.
  • Investors must take note of the fact that different tax rate are applicable for each form of investment.
• Factors that should be considered when making an investment decision

  Liquidity

  • Refers to the speed with which an investment can be converted into cash.
  • The easier to convert an investment into cash, the more liquid the investment.
  • Amount should be invested in a type of investment that can easily be converted into cash.
• Types of investment opportunities and risk factors

  Mutual funds/ Stokvels

  • Established by a small group of people who voluntarily make contributions into a savings fund.
  • Members of the stokvels are encouraged to save monthly for specific goal.
  • Return on investment is limited because of regular fund withdrawals by members.

  Risk

  • Investment linked to low risk, money of investors are relatively safe.
  • Possibility exists that a member would be unable to contribute his/ her monthly savings.
• Types of investment opportunities and risk factors

  Managed portfolio

  • Investor has the opportunity to make use of financial advisor to manage all his/ her investments in one portfolio.
  • Financial advisor has full control over the investments in the investor's portfolio.

  Risk

  • Financial advisors prefer investing funds in the capital market.
  • Risks linked to a managed portfolio i lower over a longer period.
• Types of investment opportunities and risk factors

  Business ventures/ Venture capital

  • Investors make funds available to prospective business to start a business, they become co-owners of business.
  • Investor must familiarise himself/ herself with the market in which the business will be operating before making investment.

  Risk

  • Risks linked to this type of investment could be high if investor did not familiarise themselves with the market.
  • Entrepreneurs with limited experience may not be able to manage business successfully, causing investor to lose some of investment.
• Types of investment opportunities and risk factors

  32-Day notice accounts/ Call deposits

  • Investor will earn interest at higher rate as compared to current/ savings account.
  • Investor earns interest at higher rate than what he/ she would have earned if the investment was made into savings account.

  Risk

  • Low risk, as investment plus interest will be paid out on the maturity date of investment.
  • Interest is compounded daily, and this increase the value of investment.
• Types of investment opportunities and risk factors

  Debentures

  • Debentures are issued to raise borrowed capital from the public.
  • Most type of debentures can be traded on the JSE.
  • Debenture holders are creditors, as the company is liable to repay the amount of the debentures.

  Risk

  • Debentures have a low risk as they need to be paid back.
  • Investors earn a steady income in the form of interest while preserving their principal amount.
• Types of investment opportunities and risk factors

  Endowment/ Life insurance policies/ Retirement annuities

  • Investor makes monthly premium contributions to an insurance company and is guaranteed a predetermined fixed amount at the end of the period/ death.
  • Investment provides his dependents with financial security in the event of his/ death.

  Risk

  • Risk to the investor is low because payments will be made on the occurrence of a future event/ death.
  • Investor may lose money if insurance company is declared bankrupt before occurrence of event insured against.