LRS
Investment
1. Principles of Investment Evaluation
When assessing potential investments, investors must look at three critical factors to balance
their choices properly:
• Risk Profile: This indicates the probability of losing capital. Higher financial returns
generally require accepting greater volatility or potential loss.
• Return on Investment (ROI): A standard performance metric utilised to calculate the
profitability and capital efficiency of an investment relative to its initial cost.
• Investment Timeline: The expected duration of the holding period. Longer timelines are
riskier because of the volatility.
Based on the alignment of these criteria, market players typically implement one of four core
investment frameworks:
Strategy Framework Risk Strategic Objectives & Allocation
Level
Growth Strategy High Risk Prioritizes long-term capital enhancement over immediate
regular returns. Heavily weighted toward equity markets
and public shares.
Balanced Medium Risk Blends long-term growth with steady regular returns.
Strategy Capital is diversified across equities, interest-bearing fixed
deposits, and real estate.
Defensive Strategy Low Risk Focuses mostly on stable monthly cash generation alongside
modest capital growth. Backed heavily by real estate and
banking cash products, with a minimal share allocation.
Conservative Capital Designed for extreme risk aversion. Entirely focused on
Strategy Preservation steady monthly payouts while safeguarding capital value.
Investments are strictly tied to high-grade properties and
liquid cash market instruments.
2. Shares and Equity
Equities & Shares
Shares represent fractional ownership in a company. For publicly listed entities, financial
statements are transparently public. Investors enter the equity markets via two primary paths:
(1) Primary markets by purchasing newly issued stock directly from the firm, or (2) Secondary
markets via exchanges such as the Johannesburg Stock Exchange (JSE) from existing holders.
The JSE maintains strict disclosure rules to protect the general investing public from operational
fraud. Within this space, stocks are categorised in the following subclasses:
1
, LRS
• Blue-Chip Shares: Businesses that have reliable track records and highly consistent
returns.
• Black-Chip Shares: Businesses in South Africa showcasing strong compliance and high
performance on the Broad-Based Black Economic Empowerment (BBBEE) framework.
• Green-Chip Shares: Environmentally conscious organizations executing operations via
sustainable and eco-friendly models.
Key Equity Considerations
Market Dynamics: Equity pricing changes constantly due to shifting supply and demand curves.
Key drivers include economic confidence, regulatory policies, sector performance, firm-level
financial performance, leadership trust, and widespread media narratives.
Dividends: Shareholders anticipate regular cash dividends out of corporate profits. However,
these are never legally guaranteed; a company may entirely skip payouts if distributing cash
weakens its baseline financial position.
Unit Trusts
A unit trust is a collective investment scheme that pools capital from numerous clients into a
diversified basket of stocks, bonds, or money market instruments trading on public exchanges.
The fund is controlled by a professional fund manager responsible for strategic asset allocation
across different industrial sectors.
• Risk Profile: Highly customisable. The final asset allocation is tailored to match the client's
chosen risk tolerance model.
• Financial Returns: Historically structured to outpace inflation benchmarks over a rolling 2-
to-5-year cycle, though performance relies fully on manager execution and market
movements.
• Investment Timeline: Recommended as a medium- to long-term vehicle, accessible
through continuous monthly contributions or lump sums.
Debentures
A debenture acts as an acknowledgment of debt (an IOU) issued by businesses to secure long-
term funding for large-scale capital projects. Because these instruments are completely
unsecured by physical assets, the holder faces standard credit risk; if the company defaults,
debenture owners can lose their principal capital. To offset this, they offer relatively high interest
yields. Debentures are categorized by their structural repayment conditions:
• Redeemable Debentures: The corporate issuer is legally obligated to return the core
capital amount on a predetermined future date.
• Irredeemable Debentures: The principal is never paid back; instead, interest distributions
continue indefinitely to the holder.
2
Investment
1. Principles of Investment Evaluation
When assessing potential investments, investors must look at three critical factors to balance
their choices properly:
• Risk Profile: This indicates the probability of losing capital. Higher financial returns
generally require accepting greater volatility or potential loss.
• Return on Investment (ROI): A standard performance metric utilised to calculate the
profitability and capital efficiency of an investment relative to its initial cost.
• Investment Timeline: The expected duration of the holding period. Longer timelines are
riskier because of the volatility.
Based on the alignment of these criteria, market players typically implement one of four core
investment frameworks:
Strategy Framework Risk Strategic Objectives & Allocation
Level
Growth Strategy High Risk Prioritizes long-term capital enhancement over immediate
regular returns. Heavily weighted toward equity markets
and public shares.
Balanced Medium Risk Blends long-term growth with steady regular returns.
Strategy Capital is diversified across equities, interest-bearing fixed
deposits, and real estate.
Defensive Strategy Low Risk Focuses mostly on stable monthly cash generation alongside
modest capital growth. Backed heavily by real estate and
banking cash products, with a minimal share allocation.
Conservative Capital Designed for extreme risk aversion. Entirely focused on
Strategy Preservation steady monthly payouts while safeguarding capital value.
Investments are strictly tied to high-grade properties and
liquid cash market instruments.
2. Shares and Equity
Equities & Shares
Shares represent fractional ownership in a company. For publicly listed entities, financial
statements are transparently public. Investors enter the equity markets via two primary paths:
(1) Primary markets by purchasing newly issued stock directly from the firm, or (2) Secondary
markets via exchanges such as the Johannesburg Stock Exchange (JSE) from existing holders.
The JSE maintains strict disclosure rules to protect the general investing public from operational
fraud. Within this space, stocks are categorised in the following subclasses:
1
, LRS
• Blue-Chip Shares: Businesses that have reliable track records and highly consistent
returns.
• Black-Chip Shares: Businesses in South Africa showcasing strong compliance and high
performance on the Broad-Based Black Economic Empowerment (BBBEE) framework.
• Green-Chip Shares: Environmentally conscious organizations executing operations via
sustainable and eco-friendly models.
Key Equity Considerations
Market Dynamics: Equity pricing changes constantly due to shifting supply and demand curves.
Key drivers include economic confidence, regulatory policies, sector performance, firm-level
financial performance, leadership trust, and widespread media narratives.
Dividends: Shareholders anticipate regular cash dividends out of corporate profits. However,
these are never legally guaranteed; a company may entirely skip payouts if distributing cash
weakens its baseline financial position.
Unit Trusts
A unit trust is a collective investment scheme that pools capital from numerous clients into a
diversified basket of stocks, bonds, or money market instruments trading on public exchanges.
The fund is controlled by a professional fund manager responsible for strategic asset allocation
across different industrial sectors.
• Risk Profile: Highly customisable. The final asset allocation is tailored to match the client's
chosen risk tolerance model.
• Financial Returns: Historically structured to outpace inflation benchmarks over a rolling 2-
to-5-year cycle, though performance relies fully on manager execution and market
movements.
• Investment Timeline: Recommended as a medium- to long-term vehicle, accessible
through continuous monthly contributions or lump sums.
Debentures
A debenture acts as an acknowledgment of debt (an IOU) issued by businesses to secure long-
term funding for large-scale capital projects. Because these instruments are completely
unsecured by physical assets, the holder faces standard credit risk; if the company defaults,
debenture owners can lose their principal capital. To offset this, they offer relatively high interest
yields. Debentures are categorized by their structural repayment conditions:
• Redeemable Debentures: The corporate issuer is legally obligated to return the core
capital amount on a predetermined future date.
• Irredeemable Debentures: The principal is never paid back; instead, interest distributions
continue indefinitely to the holder.
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