Beginner Investor? A Guide to Starting Your Investment Journey and Terms You Need to Know

Are you a first-time investor or do you want to know how to start investing? Embarking on your investment journey might seem like a daunting task, especially if you're new to the world of finance, but fear not! This Money Smart Week, Duma Mxenge, Business Development Manager at Satrix, explains how you can get started with five easy steps and unpacks the investment terms you need to know: 

1. Set aside a manageable principal amount. This can be as little as R10 each month deposited into your savings account. You can gradually increase this amount as you see fit. 
2. Learn how the stock market works. Understanding how the stock market is affected by changes in the economy will assist you in managing your investment. 
3. Create a detailed plan and time frame for your investments. Having a clear idea of what you wish to achieve and by when, will keep you grounded and on track to achieve your goals. 
4. Have a diversified investment portfolio. Once you have found your footing in the investment space, investing in different asset classes (assets are the different types of things you can invest in, e.g property, shares, bonds, cash) and industries will mitigate the risk of your investments underperforming, should the economy take on a downward trajectory. 
5. Always be willing to learn. The world of investing is a dynamic and interesting space, with so many niches to tap into. Take the time to learn about how your investment personality is affected by the ups and downs of investing, how to keep your cool during volatile times in the market and knowing which investment is worth committing to. 

When entering the world of investing, you may encounter many new terms and understanding these terms will help you become a confident investor. Here Mxenge explains some of the terms you should know to ensure a smooth and confident investing journey. 

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 (JSE). 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 five to seven 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 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 (e.g. 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 ETF 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.

Disclosure

Satrix Managers (RF) (Pty) Ltd (Satrix), a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. Past performance is not necessarily a guide to future performance, and that the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager on request. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. Performance is calculated for the portfolio and the individual investor performance may differ as a result of initial fees, actual investment date, date of reinvestment and dividend withholding tax. The manager has the right to close the portfolio to new investors in order to manager it more efficiently in accordance with its mandate. A copy of the Performance fee Frequently Asked Questions can be obtained from our website: https://satrix.co.za/ Annualised return is the weighted average compound growth rate over the period measured. 

If performance fees are charged the following performance fee clause must be added: A copy of the Performance Fee Frequently Asked Questions can be obtained from our website: https://satrix.co.za/

The Satrix Property ETF is a South African – Real Estate - General fund. Maximum fund charges are 0,33 % (incl. VAT). Full details and the basis of the award are available from the manager. For more information, visit https://satrix.co.za/products

The Satrix Balanced Index Fund is a moderate-risk portfolio that aims to deliver income and capital growth over the medium term. There is some exposure to risky asset classes (such as equities, local and global) necessary to grow capital over the medium to long term.  The total expense ratio of the most expensive fee class is 0,50% (incl. VAT). 

A money market portfolio is not a bank deposit account. The price is targeted at a constant value. The total return to the investor is made up of interest received and any gain or loss made on any particular instrument and in most cases the return will merely have the effect of increasing or decreasing the daily yield, but that in the case of abnormal losses it can have the effect of reducing the capital value of the portfolio. Excessive withdrawals from the portfolio may place the portfolio under liquidity pressures and in such circumstances a process of ring-fencing of withdrawal instructions and managed pay-outs over time may be followed. Seven-day rolling yield is calculated by taking into account the interest earned by the fund during a seven-day period minus any management fees incurred during those seven days. Income funds derive their income primarily from interest-bearing instruments. The yield is a current and is calculated on a daily basis.