“An investment in knowledge pays the best interest.” (Benjamin Franklin)
One of the biggest hurdles for new investors is the jargon. The investment world is filled with acronyms, technical terms, and specialist language that can be intimidating.
But this language barrier shouldn’t stop you from asking questions or investing in your future. So, here is a guide to some of the most common investment terms that every South African investor should know.
 |
Shares When you buy a share, you are buying part ownership in a company that entitles you to a portion of its profits. Example: If you own shares in Naspers, you are one of its owners and benefit if the company grows and pays dividends. |
|
 |
Bonds Bonds are essentially loans that investors give to governments or companies, with the promise of being paid back with interest. Example: The South African government issues bonds to fund spending and pays interest in return. |
|
 |
Index A benchmark that tracks the performance of a group of shares or bonds representing an entire market, or specific part of that market. Example: The JSE Top 40 Index measures the performance of the 40 largest companies on the Johannesburg Stock Exchange. |
|
 |
Inflation risk The danger that rising prices might erode the purchasing power of your investments. Example: If you earn 5% interest, but the inflation rate is 6%, the value of your money has actually gone down. |
|
 |
Market risk The chance that your investments will lose value due to general movements in the market. Example: Even if Shoprite is performing well as a company, its share price might fall if investors think that the South African economy as a whole is under pressure. |
|
 |
Diversification By spreading your money across different assets, you reduce risk and broaden your chances of earning returns. Example: A South African investor might hold both local and international shares to balance out risks and increase their sources of return. |
|
 |
Volatility The degree to which investment prices move up and down. Example: In 2021, the rand went from R15,30 to the dollar at the start of the year, to R13,35 by the middle of the year, and back to R15,55 by the end of the year – an illustration of its volatility. |
|
 |
Compound growth Growth earned not only on your original investment but also on the returns that investment generates. Example: If you invest R10,000 and earn 10% a year, after the first year you have R11,000, and then you start earning 10% on that bigger amount, getting you to R12,100 that year. |
|
 |
Unit trusts Pooled investments where many investors’ money is combined to buy a range of assets, thereby reducing costs and providing simple access to markets.
|
|
 |
Hedge funds Investment funds that use a wider range of strategies than unit trusts to try to generate returns.
Example: Hedge funds can also “short” shares, meaning they make profits if the share price falls. |
|
 |
Exchange-Traded Funds (ETFs) Investment funds that trade on the stock exchange like shares.
Example: The Satrix 40 ETF tracks the JSE Top 40 and is one of the most popular ETFs locally. |
|
 |
Tax-Free Savings Accounts (TFSAs) Government-approved accounts where all growth, dividends, and interest are free of tax.
You can invest up to R36,000 per year into your TFSA. |
|
 |
Retirement Annuity (RA) A long-term savings product designed for retirement, with contributions offering tax deductions. You can claim back up to 27.5% of your taxable income or R350,000 per year by contributing to an RA.
|
|
 |
Living Annuity A retirement income product where you draw a flexible income from your investment, which continues to be exposed to market growth and risk. Any remaining capital will form part of your estate.
|
|
 |
Guaranteed Annuity A retirement income product where the insurer guarantees a set monthly income for life, taking away any market risk. You “purchase” this annuity, and there is no leftover capital when you pass away.
|
|
 |
Total Expense Ratio (TER) The annual cost of managing a fund, expressed as a percentage of assets.
Example: A South African unit trust might have a TER of 1%, meaning R100 of every R10,000 is used to cover costs each year. |
|
 |
Total Investment Charge (TIC) A broader measure that includes the TER plus any additional costs, such as advice or performance fees.
|
|
 |
Capital Gains Tax (CGT) Tax paid on the profit from selling an investment at a higher price than you bought it.
Example: If you buy shares for R50,000 and sell them for R100,000, part of your R50,000 gain will be taxed. |
|
 |
Dividend Withholding Tax (DWT) A tax deducted from dividend payments made by companies to shareholders. In South Africa, companies withhold 20% from dividends before they reach investors.
|
Closing thoughts
While the jargon can seem overwhelming, understanding these terms is empowering. They form the foundation of how investments are structured, taxed, and managed in South Africa.
The more you understand, the better equipped you are to make informed decisions – and to grow your wealth over the long term. To discuss anything to do with your investments, speak to us.
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 us for specific and detailed advice.
© FinDotNews