“An investment in knowledge pays the best interest.” (Benjamin Franklin)
A is for Asset
Your possessions are known as your assets, while any debts are called liabilities. If your home’s mortgage is fully paid up, your home is an asset, but if you’re still paying off a hefty home loan and incurring maintenance costs, it could be a liability. Please chat with us before you make decisions, as the real value of homes in South Africa has been declining. (Real values take inflation into account.)
Your net worth is determined by subtracting your liabilities from your assets. Remember that not all assets are created equal. That brand-new Fortuner may look great in the school parking lot, but it’s been losing value since you drove it out of the showroom. This makes it a depreciating asset; not a great idea unless you can really afford it.
Understanding asset classes
Savvy investors understand asset classes.
- When we talk about asset classes, cash refers to money that is readily available for use. It’s the most liquid form of asset, meaning it can be quickly and easily converted into a known amount of currency without significant loss of value. This includes funds in bank accounts and short-term investments such as money market unit trusts. Cash is often held for short-term needs, such as emergency funds or awaiting investment opportunities. It’s considered a low-risk, low-return investment.
- Bonds are fixed-income investments where an investor loans money to a borrower (typically a government or corporate), who borrows the funds for a defined period. Bondholders receive regular interest payments (coupons) for the bond’s duration. At the end of the bond’s term, the borrower repays the principal amount borrowed. Bonds are generally seen as less risky than equities.
- Equities are shares or stocks that represent ownership in a company. When you invest in equities, you’re buying a portion of a company, and your investment’s value can rise or fall with the company’s performance. Equities are known for their potential to deliver higher returns than other asset classes. But they also come with higher risks due to market volatility.
- Property includes residential homes, rental properties, commercial properties, real estate investment trusts, and property unit trusts. As with any other asset class, there are risks associated with some investments, including liquidity and interest rates.
Spread the love
A sound investment strategy involves combining investments from various asset classes to build up what is known as a diversified portfolio. Call it not putting all your eggs in one basket.
Fortunately, you don’t have to do all the picking and choosing yourself; that’s what we do. When we put together your diversified portfolio, we carefully consider your short and long-term goals. And we make tweaks as your circumstances change.
It all comes down to time
Having time to play with means that you can take more significant risks in return for higher potential rewards. If you’re saving for a dream Kgalagadi overlanding trip, you’d be well-advised to invest in a stable, cash-heavy investment. If, however, you’re starting a university fund for your toddler, you can stomach the more significant risks associated with equities.
Contact us if you’d like to discuss any of these simple terminologies and how they apply to your situation.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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