Terminology

What is a portfolio?

As can be seen from the example a portfolio can have portions invested in various asset classes or investments such as shares, bonds, property and cash

Diversification

We don’t put all your eggs in one basket. By investing in different asset classes and with many different issuers of shares and bonds, we reduce your risk of being over-exposed to a poorly-performing investment. Owning a diversified portfolio is an integral part of successful long-term investing.

Shares

You are part owner of a company. This is the most risky investment type since the returns of this investment is directly determined by the performance of the company you are invested in. This means you could have a negative return if the company does not perform well. The more companies you invest in, the lower your risk to any one company – this is called diversification. An investment in shares should provide you with high returns over the long term but your investments will be affected by short term market fluctuations.

Property

You are part owner in several properties – retail,commercial and industrial properties. Property isgenerally less risky than shares. The main risks are sudden rises in interest rates, a drop in property prices and an oversupply of rental property leading to lower rental income.

Bonds

These are loans to the government and other largesemi-government organisations. These are lessrisky than shares and property. The main risk is the government defaulting on its obligations. This is generally the safest investment.

Cash

This is often viewed as the safest investment typeas your return (interest) is known when you makeyour investment. However, you have the risk that the returns may not keep up with inflation over the long term. The main risk is the bank defaulting on its obligations.

International Investments

SA retirement funds may invest up to 25% ininternational markets. Research shows that a highweighting in international assets improves diversification and buffers investors from a poorly performing domestic market.