- An asset class is a group of securities that are subject to the same regulations.
- There are four asset classes and all have their own risk level.
- Risk levels range from low to moderate to high.
When entering the world of investing, you may encounter many new terms, and understanding them will help you become a confident investor.
Here are some of the terms you should know:
1. Asset class
An asset class is a group of securities (investable instruments) that 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 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 an index tracking fund from a reputable institution.
2. Equities
Equities are shares of companies which are listed on a stock exchange locally or internationally.
READ MORE | Investing 101: How to get started
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.
You should be prepared to be invested for a longer period, at least five to seven years. Examples of equity markets include the Johannesburg Stock Exchange (JSE) and Nasdaq.
3. 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.
4. 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. It is suitable for investors who have a shorter investment term i.e. six to 18 months.
5. Listed property
Listed companies that 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).
READ MORE | Unlocking financial success this International Women's Day
This asset class has a high-risk profile and should be seen as a longer-term investment.
6. Investing across asset classes
If choosing a single asset class seems too limited, you may want to consider 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. Diversification lowers your portfolio's risk because different asset classes do well at different times.
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 that suits their risk profile.
Disclosure
Satrix Managers (RF) (Pty) Ltd (Satrix) is 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 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 with holding tax.
The manager has the right to close the portfolio to new investors in order to manage 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/
