Beginner Investor? Terms You Need To Know Before You Start Investing

Are you a first-time investor? Do you want to know how to start investing? Satrix, South Africa’s leading provider of index-tracking products, has partnered with Money Smart Week 2022 to guide South Africans in starting their investment journey. Part of this involves understanding investment terms to help you become a confident investor.   

Here Duma Mxenge, Business Development Manager at Satrix unpacks some of the terms you should know to ensure a smooth and confident investing journey.  

What Is An Asset Class?  

An asset class is a group of securities (investable instruments) which have similar characteristics; they behave similarly in the marketplace and are subject to the same regulations. 

The main four asset classes are equities, fixed income, property and cash. Each asset class has a particular level of risk associated with it. The risk level is an indicator of the potential return – higher risk equals an increased probability of a higher return and vice versa. 

When making an investment decision, the first choice you are making is which asset class to invest in. Think about the choice you make to either keep your money in a bank account or invest in a Satrix index tracking fund.  

Equities  

Equities are shares of companies which are listed on a stock exchange. Most Satrix funds invest in shares that are listed on the Johannesburg Stock Exchange. These shares make up the indices our products track. Equity investments are for those who want maximum capital growth and can tolerate short-term price movements and the high risk associated with this asset class. If you’re willing to take on higher risk to increase the probability of a higher return, then this is the asset class for you. You should be prepared to be invested for a longer period, at least 5 to 7 years. 

Satrix offers index tracking products which invest in equities listed locally or internationally. 

Fixed Income  

Fixed income instruments or bonds are debt investments in which you are effectively lending money to government or companies in order to earn a regular interest payment i.e. a fixed income in interest terms. These funds are for investors looking for a predictable income stream and are associated with a moderate risk level. Be aware, however, that these funds may experience some price fluctuations in the short term. 

Fixed income instruments can be invested in locally or offshore, usually via foreign bond exposure. 

Cash  

Cash investments include bank deposits and short-term money market assets. They are low risk investments and are highly liquid. Along with the low risk comes a lower level of return. The Satrix Money Market Fund does not track a specific index but aims to deliver a higher level of income than fixed deposits and call deposits over time. It is suitable for investors who have a shorter investment term i.e. 6 – 18 months. 

Listed Property 

Listed companies which invest in local and international properties (eg. shopping centres, industrial blocks and offices) make up the listed property sector. 

Listed property is often seen as a hybrid asset class because the shares exhibit qualities of both equities (due to their listing on the JSE) and bonds (due to the anticipated yield/rental income from the underlying properties). As a result of the higher yield from rental agreements, the Satrix Property Index Fund could form part of a longer-term income portfolio, while still providing capital growth. This asset class has a high-risk profile and should be seen as a longer-term investment. 

Investing Across Asset Classes  

If choosing a single asset class is too daunting to contemplate, you may want to consider Satrix’s Multi-Asset or Balanced Funds which are diversified portfolios investing across all asset classes including equities, property, cash, bonds and offshore investments in a single fund. By diversifying your investments, you lower the risk of some of the higher risk asset classes in the fund, allowing a moderate or conservative investor to find a fund which suits their risk profile. Satrix Balanced Index Fund and the Satrix Low Equity Balanced Index Fund are Regulation 28 compliant which means they are suitable to be used for retirement savings. 

Disclaimer: 

Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision. 

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP’s, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.