Investment Criteria and Strategies

Comprehensive vocabulary flashcards covering investment criteria, asset classes, strategies, and specific investment instruments based on Grade 12 curriculum notes.

Risk (Investment)

The degree of uncertainty where a high risk investment is expected to deliver a higher return if it succeeds but can result in a big loss if it fails.

Return on Investment (ROI)

A tool used to measure the efficiency of an investment and indicate what the investor will get back over and above the initial investment.

Diversification

The practice of spreading risk by investing in more than one asset class to reduce potential losses.

Cash (Asset Class)

Low-risk, interest-bearing investments such as fixed deposits and savings accounts that offer no capital growth potential.

Bonds

A moderate-risk, interest-bearing investment where governments and public companies borrow money by issuing a letter of credit (IOU); it offers no capital growth potential.

Property (Asset Class)

Moderate to high-risk investment in real estate (flats, land, buildings) that generates rent and offers capital growth potential.

Equity (Asset Class)

High-risk investment in shares on the JSE or other stock markets where investors become part-owners and earn dividends or profit when selling.

Junk Status

A credit rating indicating that government bonds are high-risk, leading to higher borrowing costs and reduced foreign investment.

Asset Allocation

The process of dividing an investment portfolio into different asset classes like stocks, bonds, and cash based on risk appetite and time horizon.

Stop-loss Strategy

A predetermined price set by an investor to sell shares automatically to limit potential losses.

Rebalancing Strategy

The process of adjusting the mix of assets in a portfolio to restore the balance between risk, goals, and time horizon.

Capital Growth

An investment focus where the goal is to sell an asset, such as shares or property, at a higher price than the initial purchase price.

Income (Investment Strategy)

A strategy focused on gaining dividends, rent, and interest for stability rather than significant capital growth.

Growth Strategy

A high-risk strategy aimed at long-term capital growth, often utilizing shares on the JSE.

Balanced Strategy

A moderate-risk strategy aiming for both capital growth and some monthly income through a combination of equities and interest-bearing investments.

Defensive Strategy

A low-risk strategy emphasizing monthly income with a small amount of capital growth, typically involving property and bonds.

Conservative Strategy

A strategy for investors who do not want risk, focusing on monthly income and maintaining the capital amount through property and interest-bearing instruments.

Bull Market

A market mood where investors are positive and share prices are increasing.

Bear Market

A market mood where investors are negative and share prices are decreasing.

Speculators

Short-term investors who buy shares to make profit from selling them quickly rather than holding them for dividends.

Blue-chip Shares

Shares in high-end companies with consistently stable financial records over time, regarded as a less risky equity option.

Debentures

A type of unsecured bond or letter of credit used by businesses to raise borrowed capital; holders receive interest but do not gain capital growth.

Redeemable Debentures

Debentures that are repayable by the company on a predetermined date.

Irredeemable Debentures

Debentures that are never paid back by the company, providing the holder with interest indefinitely.

Prime Rate

The best interest rate banks charge their most creditworthy corporate customers when granting loans.

Retirement Annuity (RA)

An individual policy providing income after age $55$, involving monthly premiums and offering tax relief.

Pension Fund

Group employee benefits where contributions are pooled by a fund administrator to provide a monthly income upon retirement.

Endowment

A long-term savings plan (usually $5$ to $10$ years) involving lump sum or monthly contributions that pay out upon maturity or death.

Offshore Investment

Investing in a different country to achieve diversification across markets and benefit from exchange rate fluctuations.

Unit Trusts

A managed fund described as a "basket of shares" where an investor's money is pooled and invested in a diversified portfolio by a fund manager.

Collectibles

Investment items such as antiques, artwork, coins, and stamps that increase in value over time but provide no monthly income.

Fixed Deposit

An investment where a fixed amount is held for a predetermined time at a specific interest rate, with penalties for early withdrawal.

Money Market Accounts

Highly liquid, short-term investments that typically outperform normal savings accounts and allow access to funds with short notice periods.

Gearing

The ratio of borrowed capital to own capital used to potentially increase the return on an investment.

Positive Leverage Effect

Making a profit out of borrowed money by using external financing to increase investment returns.

Cryptocurrency

Digital money secured by blockchain technology, with a value determined by supply and demand rather than a specific country's currency.

Capital Gains Tax (CGT)

Tax paid when disposing of an asset (selling, donating, etc.) based on the difference between the selling price and the purchase price.

Dividends Tax

Tax paid by shareholders on profits shared by companies, set at a rate of $20\%$.