5 Different Types of Investments Made Simple


Yes, financial freedom starts with spending less and saving more, but it doesn’t end there. Today we discuss different types of investments so you can maximise security in how you put your money to work.

There is an existing degree of confusion about saving and investing. Though the terms are at times carelessly used as interchangeable, there is a difference between the two. Saving can be regarded as simply putting money aside that you won’t spend immediately, but will rather spare for future purchases, or emergencies; while investing can be regarded as buying assets such as bonds, shares, exchange-traded funds (ETFs), cash instruments and so on, with the expectation that your investment will earn you a profit.


When you buy an asset such as a share, you essentially hope that the value of the issuing company will increase, so that the shares will become worth more than what they originally were. The increase in value is referred to as capital gain. If you choose your pick right, the company may even reward you with a dividend as an investor, while you wait for the right time to sell your shares. The best time to start investing is today!




Now, as promised in the headline, here are some of the different investment vehicles that you can use to drive you to your destination of financial freedom:

1. Exchange-Traded Funds (ETFs)


Simply put, an exchange-traded fund is a pooled investment vehicle that offers diversified exposure to a particular area of the market. An easy way to look at them is to just consider them as a basket of assets, rather than buying a bunch of individual securities to make up your basket you can just buy yourself the basket as a whole.

ETFs are much like unit trusts (otherwise known as mutual funds), the key difference being that ETFs are traded like stocks (on an exchange, anytime you want, whenever the market is open), but unlike a unit trust, some of the benefits that come with ETFs are that they offer diversification (one ETF can give you exposure to a group of equities), low fees (ETFs don’t require a lot of active management so their fees are much lower than managed funds), and are easy to trade as ETFs trade like stocks, and can be bought/sold freely throughout the trading day).

2. SHARES


A share represents your portion or shares in a company. Shares are usually issued by companies in order to raise funds. You make money from shares by buying them at a certain price and selling them at a higher price (referred to as capital gain), as well as through dividends issued by the company.


An easy way to get the hang of shares is to look at them like this: if you bought shares in Sasol, you would own a portion of Sasol’s profit/loss and if Sasol grows it will pay you dividends and you will eventually be able to sell your shares at a higher price than what you bought them for.

3. BONDS


Bonds are a financial tool used by companies, municipalities and governments to raise money from investors. While tax is the main way our government raises funds to finance government spending, they may also issue bonds to cover shortfalls. By buying a bond you are basically issuing a loan to the bond issuer (the creator of the bond) and in return, you will receive regular interest payments from the bond issuer. The payments will run until the expiry date of the bond, on which day the bond issuer also promises to repay the principal amount that you initially loaned out to them.

To put this into perspective, if you were to invest R1,000 in a 3-year RSA Fixed Rate Retail Savings Bond with a 7.75% yield, you would receive R77.50 (7.75% x R1,000) in interest each year for three years. At the maturity date, you would also be repaid the original R1,000 investment amount.


RSA Bonds, as issued by the Asset and Liability Management division of the National Treasury, are interest-bearing bonds with the Government of South Africa that allow you to technically put your money at work for things that are more likely to resonate with you as a citizen.


4. CASH


We often hear of cash investments, yet know so little about what cash investments are in the world of finance? Well, the term “cash investment” can be used to refer to investments in fixed-deposits and high-interest bank accounts, or in a money market fund that may hold T-bills, certificates of deposit, and other short term investments, such as bonds with a maturating date of less than a year.


The benefit of cash investments is that they’re low risk, and offer better capital protection but as you probably figured, they also come with lesser returns than other investments, or asset classes. They are great for short-term horizons, and therefore they’re much less attractive in the long run for those who are looking to bag some inflation-beating returns.

5. PROPERTY


Last but not least on our list is property! There are a plethora of ways to invest in property aside from investing in the usual bricks-and-mortar house, and no I’m not about to talk about buying-to-let either. There are other much cheaper options at your disposal if you’re looking into jumping into the property sector, such as investing in listed property. You can do this either via real estate investment trusts (REITs) or property ETFs, both of which are available on the JSE, the difference being REITs are companies that own, and often manage income-producing real-estate across a range of property sectors, a property ETF tracks the performance of a number listed properties.



Bonus Investment Type


If you’ve ever had difficulty deciding how to grow your money beyond just saving, the types of investments discussed can provide you with profitable ways to get you closer to financial freedom, that have average to good long term prospects.


With all that said, be sure to start your investment journey with the right foundations, by improving both your own and your loved one’s financial literacy through reading nourishing content such as our insightful articles, because at the end of the day the best investment you can ever make, is the one you make in yourself.


Author: Sihle Hlatshwayo

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