Investment Insights: Your Comprehensive Guide
A is for Asset
Your possessions are referred to as assets, while any debts are liabilities. If you have fully paid off your mortgage, your home is an asset. However, if you’re still burdened with a substantial home loan and maintenance costs, it may be considered a liability. Before making any decisions, it’s wise to consult with us, as the true value of homes in South Africa has been declining (considering inflation).
Your net worth is determined by subtracting your liabilities from your assets. It’s important to note that not all assets are created equal. That brand-new Fortuner may turn heads in the school parking lot, but its value has been depreciating ever since it left the showroom. This makes it a depreciating asset, which may not be a prudent choice unless you can truly afford it.
Understanding Asset Classes
Astute investors comprehend the concept of asset classes.
- When we discuss asset classes, cash refers to readily available funds. It’s the most liquid form of asset, meaning it can be easily converted into a specific amount of currency without a significant loss of value. This includes funds in bank accounts and short-term investments like money market unit trusts. Cash is typically 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 lends money to a borrower, usually a government or corporation, for a specified period. Bondholders receive regular interest payments (coupons) throughout the bond’s duration. At the end of the bond’s term, the borrower repays the principal amount borrowed. Bonds are generally perceived as less risky than equities.
- Equities are shares or stocks that represent ownership in a company. When you invest in equities, you acquire a stake in the company, and the value of your investment can rise or fall based on the company’s performance. Equities are renowned for their potential to deliver higher returns compared to other asset classes. However, they also entail higher risks due to market volatility.
- Property encompasses residential homes, rental properties, commercial properties, real estate investment trusts, and property unit trusts. As with any other asset class, certain investments within property come with associated risks, such as liquidity and interest rates.
Diversify Your Investments
A sound investment strategy involves combining investments from various asset classes to create a diversified portfolio. This approach ensures that you don’t place all your eggs in one basket.
Fortunately, you don’t have to navigate this selection process alone; that’s where we come in. When we construct your diversified portfolio, we carefully consider your short and long-term goals. We also make adjustments as your circumstances evolve.
It All Comes Down to Time
Having time on your side allows for taking greater risks in exchange for higher potential rewards. If you’re saving for an unforgettable Kgalagadi overlanding trip, it would be wise to invest in a stable, cash-heavy option. However, if you’re starting a university fund for your toddler, you can tolerate the greater risks associated with equities. Your risk profile at Silverspoon Wealth is tailor made for you.
Feel free to reach out to us if you’d like to discuss any of these fundamental concepts and how they apply to your specific situation.