www.fsca.co.

za

FSCA Investment Guide

A beginner, intermediate and advanced look at investing

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 1

FSCA Investment Guide
A beginner, intermediate and advanced look at investing
Acknowledgements

The FSCA acknowledges the input provided by the individuals and organisations listed below into the development,
review and preparation of the FSCA Investment Guide.

• Financial Sector Conduct Authority (FSCA)

• Department of Taxation, University of South Africa (Unisa)
• Financial Intermediaries Association of Southern Africa (FIA)
• Financial Planning Institute of Southern Africa (FPI)
• First National Bank (FNB)
• The Johannesburg Stock Exchange (JSE)

Note: Financial service providers (FSPs) quoted in this guide by no means indicate that the FSCA views them as
preferred FSPs or that the FSCA endorses their organisation or entity.

The FSCA Investment Guide (2022) was developed by Helen Ueckermann, an independent writing professional,
on behalf of the Financial Sector Conduct Authority (FSCA) and in consultation with stakeholders and experts in
the financial services industry.

2 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Preface
The objective of this investment guide is to inform, educate and stir into action South Africans who could be
successful investors if they only knew how. The target audience is anybody who wants to learn more about investing
and how to go about it.

The FSCA Investment Guide (2022) replaces and updates the previous investment series published in 2016 by the
former Financial Services Board (FSB), now known as the Financial Sector Conduct Authority, namely: Prepare
to Invest: An Introduction to Investing, Grow Your Money: Intermediate Investing and Create Personal Wealth:
Advanced Investing in one concise, informative guide.

The FSCA believes that educated and informed financial customers can make better financial decisions about
which financial products and services are best suited to their needs and budget. Informed and educated customers
are also more aware of their rights and responsibilities and can confidently engage with the sector on more equal
terms.

Therefore, this resource wants to build on the previous series by bringing home a deeper understanding of the topic
of investing, the benefits thereof, and the fact that anyone can do it. This is important to motivate consumers to take
the first steps towards seeing their money grow.

It aims to address gaps of financial education in the target audience, improve financial self-confidence, counter the
misbelief that you need large amounts of money to invest and bust the myth of “our lives will not improve”. It also
updates any relevant legislation that you, as financial customers and investors, should be aware of.

If this is achieved, South Africans may gain financial wellness as individuals, families and as a nation.

To get the most out of this guide, you have to apply the knowledge to your day-to-day behaviour. Therefore, we
endeavoured to provide rule-of-thumb information that is easy to apply, practical and doable. The aim is to present
the knowledge in a way that is simple to understand and relevant to South African culture.

This guide aims to assist financial customers with:

• effective day-to-day money management
• financial knowledge, seeking to support sound financial decision-making
• gaining insight into your own financial needs and following through on financial decisions
• financial planning, goal setting and choosing appropriate financial products
• risks associated with investing
• scams and how to identify them
• consumer protection and recourse

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 3

 Our beginner investor focus covers an understanding of what the financial markets are, how they work and
how to grow your money whilst at the level of risk that a beginner investor would normally be comfortable with.
Typically, beginner investors do not manage their own investments or trade in securities on a frequent basis,
and rather rely on experienced, authorised asset managers to invest on their behalf.

Thus, beginner investors make use of investment vehicles such as passive funds (a fund that simply tracks an
index) and other lower-risk collective investment schemes (unit trusts), to start saving. These vehicles enable
the beginner investor to minimise risk by keeping investments diversified with the assistance of an authorised
financial advisor.

Beginner investors should focus on how to beat the increasing cost of living and ensure that invested funds
are growing at a rate higher than inflation. Financial education and learning should be a core focus, as this
will help beginner investors understand investing and which investment vehicles are aligned with their goals.

Intermediate investors have some experience in the market and may want to become more active participants
in investment decisions but are still open to seeking the assistance of an expert such as a financial advisor
and an authorised user of exchange platforms (broker). In addition to lower risk to moderate investments, they
may move on to a more active form of investing, for instance playing a bigger role in choosing the assets they
want to invest in.

They may progress to investing directly in shares on the stock exchange and using fundamental analysis,
including asset allocation and stock picking. Intermediate investors are confident that researching and
analysing assets based on performance metrics can help them to make good decisions. Intermediate investors
look at growing funds at a higher rate by researching investment opportunities.

Their focus is on following the news and market reports to find new assets that will help them to grow their
money. However, they are typically long-term investors looking to buy and hold onto assets for longer periods
of time.

Advanced investors invest for the long-term as well as trade in the short-term, in order to take advantage
of short-term market moves. They are more confident in their ability to find opportunities in the market. They
are often prepared to take higher risks over and above the important considerations such as age and lifestyle.

In other words, within the advanced investors group one would often find that there are investors that would
be prepared to take on more risk for higher potential returns, keeping in mind factors such as the total mix
of their age, current life experience and investment portfolio. Advanced investors focus on where the next
opportunity lies, using either fundamental or technical market analysis. They are savvy enough to invest
directly without making use of a financial advisor.

4 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Table of
Contents
CHAPTER 1: MONEY AND YOU 10

PART 1: BASICS FOR BEGINNER INVESTORS 11

1. Introduction 11
2. What is investing? 12
3. The difference between saving and investing 14
4. Why you should save as well as invest 17
5. The golden rules of investment 21
6. Conclusion 22
7. Self-assessment 23

CHAPTER 2: MANAGING YOUR MONEY 24

PART 1: INSIGHTS FOR INVESTORS 25

1. Introduction 25
2. What research tells us about South Africans and money 26
3. Overcoming the stumbling blocks 27
4. A new approach to managing your money 30
5. Conclusion 32
6. Self-assessment 33

CHAPTER 3: FINANCIAL PLANNING 34

PART 1: PLANNING AND SETTING GOALS FOR BEGINNER INVESTORS 35

1. Introduction 35
2. Setting goals 37
3. Your life experiences and financial planning 42
4. Budgeting 45
5. Why you need an emergency fund 52
6. Understanding investment timeframes 53
7. Seeking advice: financial advisors 54
8. Conclusion 60
9. Self-assessment 61

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 5

 Table of
Contents
PART 2: FINANCIAL PLANNING FOR INTERMEDIATE INVESTORS 62
1. Introduction 62
2. Invest first in your education, then in the share market 62
3. Conclusion 63
4. Self-assessment 64

PART 3: FINANCIAL PLANNING FOR ADVANCED INVESTORS 65

1. Company financial results 65
2. Why company results are important to you 67
3. Conclusion 67
4. Self-assessment 68

CHAPTER 4: CHOOSING APPROPRIATE FINANCIAL PRODUCTS 69

PART 1: PUTTING TOGETHER A PORTFOLIO FOR BEGINNER INVESTORS 70

1. Introduction 70
2. Different folks, different strokes – contradictions you can expect
to run into 71
3. Putting together a diversified portfolio 72
4. Conclusion 72
5. Self-assessment 73

PART 2: TYPES OF INVESTMENT – VARIABLE AND FIXED INCOME 74

1. Fixed-interest investments 74
2. Variable-interest investments 74
3. Conclusion 85
4. Self-assessment 86

6 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Table of
Contents
PART 3: CHOOSING APPROPRIATE FINANCIAL PRODUCTS FOR
INTERMEDIATE INVESTORS 87
1. Your unique portfolio 87
2. Asset allocation 88
3. How to invest in CISs 89
4. Bonds 91
5. Property funds or real estate investment trusts (REITs) 92
6. Offshore investing 93
7. Crypto assets 94
8. Crowdfunding 97
9. Shares 98
10. Investing in a business 101
11. Conclusion 102
12. Self-assessment 103

PART 4: CHOOSING APPROPRIATE FINANCIAL PRODUCTS FOR

ADVANCED INVESTORS 104
1. Introduction 104
2. Where to find information 104
3. What to do with the information 105
4. Looking at the financial statements 105
5. Conclusion 108
6. Self-assessment 109

CHAPTER 5: TRADING PLATFORMS 110

PART 1: HOW TRADING PLATFORMS WORK FOR BEGINNER INVESTORS 111

1. Introduction 112
2. The central order book trading system 112
3. What is an index and what is it for? 113
4. Conclusion 113
5. Self-assessment 114

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 7

 Table of
Contents
PART 2: TRADING PLATFORMS FOR INTERMEDIATE INVESTORS 115
1. Introduction 115
2. Indices on the JSE 115
3. Understanding financial news 117
4. Online trading 119
5. Derivatives 121
6. Conclusion 123
7. Self-assessment 124

PART 3: TRADING PLATFORMS FOR ADVANCED INVESTORS 125

1. Costs that eat into your returns 125
2. Technical and fundamental analysis 128
3. Conclusion 129
4. Self-assessment 130

CHAPTER 6: SCAMS AND FRAUDSTERS 131

1. Introduction 132
2. Types of scams 133
3. What to look out for 138
4. What to do when you find yourself investing in a scam 139
5. Knowledge is protection 140
6. Conclusion 140
7. Self-assessment 141

8 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Table of
Contents
CHAPTER 7: KNOW YOUR RIGHTS 142

1. Introduction 143
2. Your rights as a financial customer 145
3. Your responsibility as a consumer 147
4. The FSCA 149
4.1 The role of the FSCA 149
4.2 What the FSCA does not do 149
4.3 How are investors in South Africa’s financial markets protected? 150
4.4 How and when to submit a complaint to the FSCA 151
4.5 What information is required? 151
4.6 How will I know what the outcome of the investigation is? 152
5. What are my rights if I have a complaint against an unregistered
financial institution? 152
6. Conclusion 152
7. Self-assessment 153

CHAPTER 8: A FINAL NOTE 154

USEFUL CONTACTS 156

PART 1: FINANCIAL SECTOR REGULATORS 157
PART 2: SELF-REGULATORY ORGANISATIONS (SRO) 158
PART 3: FINANCIAL SECTOR OMBUDSMEN 159
PART 4: FINANCIAL SECTOR INDUSTRY ASSOCIATIONS 160
PART 5: OTHER RELEVANT REGULATORS AND GOVERNMENT ENTITIES 161

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 9

 CHAPTER 1:
MONEY AND YOU

10 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 1: BASICS FOR BEGINNER INVESTORS

1. Introduction
When working with money, especially your money, it is essential to make good choices today, so that you do not
have future regrets. Our choices not only affect our own lives and future financial well-being but also have an
impact on the lives of others, specifically those close to us that we need to care for. We are not alone in our choices,
but we form part of a bigger financial picture.

As a beginner, intermediate or advanced investor, you all have one goal which is to make your money work for you
and for those you love. Make no mistake; investing is not only for the rich. Anybody who is interested, willing to
learn and prepared to make a few sacrifices can do it. There are some investments, such as collective investment
schemes, that accept a reasonable small amount of investment contributions monthly.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 11

2. What is investing?
We go to work every day and earn money so that we can pay for things we need and want. South Africans know
how to make extra money to live a better life – some do it by having more than one job and others by working some
smaller jobs on the side.

But have you ever thought about how to make your money work for you? How to grow your money without
labour? Investing can do that for you over the longer term. Investing entails a different way of thinking about
making money. Most people think of an income as something they earn by going to work every day and
getting paid. The problem is that there are only so many hours in a day to make money in that way.

Investing is an efficient pathway to financial wellbeing and covering future expenses such as your children’s
education or to provide an income after retirement. When you invest your money, you buy something that you
believe will increase in value over time, for instance, putting your money in the stock market by buying stocks
(equity shares) or bonds, or in a business or property. Sometimes these options are called investment vehicles,
which simply means “a place to invest”.

Here are a few tips to keep in mind:

• Do not postpone investing! The longer you wait before starting to invest, the less time the market will have to
work for you. So, start saving and investing now, even if it is only a small amount and build it up to where you
want to be. The sooner you pay off your debts, the more you will be able to save and invest. Paying off debt is
one of the best ‘investments’.
• Take that first step towards investing, even if you think you are not able to do so.
• Make sure you have all the facts and figures before making a final decision and be clear on what you want to
achieve with your investment (goal). It is vital to have realistic expectations of your investment portfolio to avoid
becoming discouraged.
• Find and consult with an authorised financial advisor that you feel comfortable with. You should be
looking for a long-term relationship with a trusted financial advisor so that he or she can learn and know your
personal needs and lifestyle compared to your total investments.
• Remember, while your financial advisor should be an expert on investments, you will always be
the expert on you, and the relationship must allow for a partnership that can work from that basis.
You remain the boss of your money.

Invest/Investing
Placing money into a financial vehicle (venture) or business such as
shares, stocks, collective investment schemes or similar.

Investment
When you have placed money in an investment product to make a profit, you
have made an investment. .

12 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 R

R
Investor
R

R
R

R R R
A person who invests, e.g., buys (invests) in shares, bonds, etc. in order to
R
make a profit or return.

Income
R Your earnings. For example, your salary, grant, maintenance, allowance,
overtime pay, etc. Also, the income that you can earn from savings and
INCOME
certain investments.

BILL
Expenses
R
The money that you spend on everything you have to pay, like bills. This
also includes money that you spend on things like birthday presents.
PAY NOW

Business
An enterprise that organises resources such as knowledge, raw materials,
land, labour and capital in order to accumulate money (profit).

Portfolio
Your collection of shares and other investments makes up your investment
portfolio. You can have just a few shares in a portfolio, but you can also
theoretically own an infinite number of shares.

Financial advisor/ Financial services provider (FSP)

A person or company that is authorised by the Financial Sector Conduct Authority
(FSCA) to provide financial advice and/or render an intermediary service in
relation to a variety of financial products, including investment products and
insurance policies. The FSP licence of the authorised person or company
specifies exactly which financial products or services they can advise on or sell.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 13

3. The difference between saving and investing
The difference between saving and investing is essential to understand. While there are differences, the
two do not work in isolation from one another and are not mutually exclusive. This is because investing also
includes elements of savings, especially when it comes to investment and banking products. While this guide is
about investing, both are important parts of your financial strategy but play different roles. Pension funds are, for
instance, essentially investment vehicles that you use to “save” for your retirement. However, unlike a short(er)-
term savings product, you cannot simply withdraw funds from a pension fund to buy a new car or go on a holiday.

• Investing allows you to grow your money so that you can meet long-term financial goals, especially
retirement. The amount of risk you can take varies a lot.

• Saving is a short to medium-term strategy where you set aside a certain amount of money to help you
accomplish short or medium-term goals and keep some cash available. Saving usually carries less risk, but the
returns are also quite limited. A good example is a normal bank savings account.

Conditions
Legally binding requirements to be followed when entering into a contract with an FSP or authorised financial
advisor or investment provider. The conditions set out the obligations of the parties that enter into a contract. Or
the terms and provisos of an investment product when you buy it.
Interest
A payment made in return for the use of borrowed money. This relates to debt instruments (also interest-
bearing instruments). For example, if you lend money to a bank or the government, they are indebted to you.
Risk appetite
Risk appetite refers to the amount of risk you are prepared to take and live with to reach your financial goals.
It is the level of risk you are prepared to accept before you adjust your investment strategy to lessen your risk.
Determining your appetite for risk helps you decide how much risk you are prepared to live with, and importantly,
when it becomes necessary to take action to reduce your risk, perhaps related to your stage of life.
Interest rate
The rate of interest paid on money borrowed, calculated as an annual percentage.
Profit
When income exceeds expenses, you have made a profit or when you get more money back than you put into
the investment.

14 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

The differences between saving and investing in more detail

Savings Investments
Period Short-term: Ready to go Long-term: Achieve major goals

• Saving is for shorter-term goals • Investing can help you reach bigger long-term goals,
like going on holiday or having like starting your own business, preparing for retirement
money for an emergency. or providing for a child’s future education.
• Savings are goal-orientated and • People invest to build wealth over a longer time, usually
are typically for smaller financial at least 5 years or more.
goals you want to achieve in 1-3 • Investing often carries a higher risk than saving of
years. capital loss – see ‘Risk’ below.

Access to Ready access to cash Harder to access cash

money
• Saving in a typical savings • When you have invested your money, it could
product gives you access to sometimes take a while before you can convert it to
your money when you need it. cash. A good example is a share portfolio – while you
You may withdraw a part of your can sell your listed shares at any time, if the market is
savings or the whole amount in a down-turn (known as a bear market), selling the
whenever you want, and without shares may result in a capital loss.
penalty. • There are different types of investments with varying
conditions on how and when you can access your
money. For instance, if you want to withdraw money
from a fixed-term deposit account or retirement fund
early, you will likely have to pay a penalty. You may also
have to pay administration charges.
• Often, if you withdraw soon after you invested, any
profit is used up by the initial and ongoing fees and you
do not make a profit.
Risk Minimal risk Involves risk

• A suitable savings product should • Investing always carries the risk of losing some or all
preserve the capital amount (the the money you invest (noting that it is unlikely that
initial amount saved), meaning you will lose the whole capital amount if invested in a
that there is minimal risk of loss. regulatedproduct with a regulated provider). This risk
However, this low risk of loss varies according to the type of investment you choose.
means lower interest earned on An authorised financial advisor will help you to identify
the amount (see below). investment products that are aligned with the risk
you are prepared to take (your risk appetite) and to
minimise the possibility of losses. Remember that, in
the long run, wise investing will probably give you better
returns than savings. This is essential to beat inflation
and not erode the value of your wealth over time.

Returns Earn interest Potential for profit

• With savings, the only returns • Investments have the potential for higher returns than a
you earn is the interest on the regular savings product, although the value of your
money you put into your savings investments may fluctuate in value over time.
product. The interest rate is • Selling shares or collective investment scheme
usually quite low. participatory interests (PI’s) at a higher price than what
you bought them for, will make you a profit.
• Investment accounts return higher interest than savings
accounts, especially over a 5 to 10-year period.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 15

 Deposit account Administration fee/charge
An account into which you deposit an An administrative charge is a fee charged by, for example, an FSP
amount of money. or a CIS manager to cover expenses related to record-keeping
and/or additional administrative costs.

It is often wise to put the money that you want quick access to into a quick-access financial product like a savings
account, and your other money into a spread of investment types, depending on your risk appetite.

Examples of interest-bearing savings instruments/products include banking products such as savings accounts,
tax-free savings accounts, call accounts, fixed-term deposit accounts and notice deposits. These products are
available at all banks. Life insurance companies and collective investment schemes also offer tax-free accounts.

What about my life insurance policy?

Insurance risk and savings policies are not considered investment vehicles as such, because no dividends or
interest are paid i.e. these policies do not generate a return on the investment, although there are often investment
components as well. Examples of these include:

• Permanent life insurance (whole life and universal life): Covers you against the risk of death while a portion
of the premium is usually directed to a saving or investment account which does build up some cash value over
time, usually less than the money you put in.

• Endowment plan: An investment/savings plan with a minimum term of five years where you can nominate a
beneficiary to receive the money or take ownership of the investment if you pass away.

16 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

4. Why you should save as well as invest
Please note: The calculations in this section are
estimations based on an interest rate of 9% per year.
Interest rates change all the time and financial customers
must always enquire after the current rate.

The wonder of compound interest

Interest is money we earn when we deposit money at the

bank or the price that we pay for credit.

There are two main types of interest.

• Simple interest is a set rate on the principal amount

saved or borrowed.

• Compound interest earns you money not only on

the principal amount borrowed but also on the interest
already earned on that amount. i.e., interest on interest.

Example:

You invest R10 000 and in year one, you earn a 10% return. That would be R1 000 in growth, increasing
your overall portfolio value to R11 000.

Then, in year two, you earn another 10%. However, now you are earning 10% on R11 000 instead of the
initial R10 000. So, you’d actually earn R1 100 in interest in year two, bringing your account value to
R12 100.

• It works the same way with your debt – if you do not pay your debt regularly, the amount you owe will grow
bigger and bigger, with interest calculated on the interest. i.e., you will end up paying much more than
originally owed.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 17

 Debt
A borrowed sum of money that is owed or due within a certain time period,
or the amount of money you have to repay when you buy things on credit.

The famous mathematician and physicist Albert Einstein reputedly said compound interest was the greatest
invention of mankind and the 8th wonder of the world. “He who understands it, earns it; he who doesn’t,
pays it,” he said.

How can compound interest work for me?

Needed:
1. Money
2. Time

Example 1
Tim is 24 years old and for the next six years, until he is 30, he puts R250
in a bank account every month. That is a total of R18 000.

If Tim simply leaves those savings in his account that pays an average of 9%
interest per year (per year is also referred to as per annum), by the age of
65, the value of those savings would be about R480 000.

This means, in this case, compound interest earned Tim an extra R462 000
without you having to lift a finger.

If Tim, decides to continue depositing R250 per month into his bank account
after he has turned 30, he would have more than a million rand by age 65.
To be specific, he would have a whopping R1 152 864.

That is the power of compounding. It transforms the money in your bank

account into a powerful income-generating tool.

Example 2
John decides to start saving R250 per month for 30 years, but he only starts
saving at age 35 – 10 years later than Tim. He earns the same interest as does
Tim, but after 30 years he only has R425 528.

This shows the importance of time: The more time you allow your savings to
compound, the better! Make an early start and reap the fruit of your efforts.

18 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

    

 
  
       
     
     


  
 

  
 
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It beats inflation
While putting money in a bank savings account does not beat inflation after deducting the costs, investment returns should
always be compared to the inflation rate. To do this properly, one needs to understand what inflation really means.

Inflation is the sustained increase in the general price level of goods and services in an economy over a period. If your money
is growing at a rate lower than the general increase in the cost of goods and services, it essentially means that your savings are
losing value year after year.

Inflation can have a negative effect on consumers as it reduces their purchasing power. Therefore, it is necessary, as a saver
and an investor, to take steps to protect your wealth against the damaging effect of inflation.

Example:
For every R4 000 you need per month after retirement, you will need to save R1 000 000. This should ensure that
you do not run out of money and will be able to give yourself an increase every year to protect your income against
increases in living expenses. If you want R20 000 per month, you will have to save R5 000 000.

– Ronald King, Director Financial Intermediaries Association of Southern Africa and Head: Public Policy &
Regulatory Affairs, PSG Konsult

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 19

It is easier and cheaper than ever before

In recent years, a great many new and cheaper ways of saving and investing have emerged. One can invest
smaller amounts in numerous investment funds that are accessible online, even on one’s smartphone.

The cost of investing has also dropped considerably. While lower, all investments have costs that lower your
returns. In South Africa fees average 2.75% of the larger spectrum of investments, plus VAT. The fees may, for
example, consist of 0.075% for advice fees; 0.5% for administration; 1.5% for investment fees. You may also be
paying performance fees. It is important to pay attention to what you pay and why; always question whether the
cost is justified. The money you pay to invest can have a big effect on what you have left in your pocket.

Protect yourself and your loved ones from financial distress

Investing, if done correctly, will help you protect your family from financial distress and will ensure that you have a
good amount of money to keep you going after retirement. The 2019 10X Retirement Reality Report states that
out of 15 million economically active South Africans, 67% have no retirement plan.

Almost a third (30%) of South Africans in general have no formal retirement savings at all (often because of
unemployment and having no choice but to depend on grants to survive) and may become reliant on family or face
poverty when they are forced to stop working and earning. Can you see why investing your money is necessary?

20 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Help make our country’s economy become stronger

A large amount of the money that people save or invest in investment products is used to buy shares and company
bonds. When investors buy company shares, the companies use that money to grow their business, which means
more productivity and more jobs, which in turn means more disposable income for workers who will then be able
to spend more money in retail stores. So, by investing in a company you help make it stronger and to employ more
people who will be able to feed their families. As the company grows, so will the value of your shares and bonds.

Share Shareholder
One of the equal parts that the ownership of a company is divided into, A person who owns shares in a
which can be bought by members of the public as shareholders. company.

5. The golden rules of investment

Investing does not come naturally to most people. We find it difficult to see our future selves as someone with
money earned from investing. When we spend money at a store, we can see and feel what we are buying. We can
compare prices and see where our money goes. We are aware of what we are investing in but may not always be
able to feel or touch it. Once you understand this, you can build a relationship with your future self as someone who
has financial ability and make it all about your long-term goals and objectives to ensure financial success.

Investing is a long-term undertaking and building an investment portfolio requires discipline and consistency.
Markets go through cycles, and your investment portfolio needs time to work through these cycles to benefit from
the long-term upward trends. These upward trends are difficult to notice when looking at your portfolio with a short-
term view.

Sticking to a few golden rules for investing will make all the difference to your success.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 21

What are the golden rules for investing?

• Stick to your long-term plan – do not focus on the short-term fluctuations in your portfolio. Give your investment
a chance to grow. Time is your friend as the value of your portfolio will go up and down all the time, but in the long
term, it will most likely show an increase in value.

• Make sure to have and maintain an emergency fund for unexpected events, to ensure that you do not have
to dip into your investment portfolio at short notice. Unexpected events may come at a time when markets are
down and can cause a capital loss in your portfolio, or it may not be easy to access your invested money in a
short space of time when you need it most.

• The products in your portfolio must be aligned with your objectives (goals), not with your emotions. Do
not be influenced by your emotions. Fear and/or greed, including the fear of missing out (FOMO), can lead to
mistakes that can cripple a portfolio. Your financial advisor can help you to stay on track here. Diversify your
portfolio by investing in different financial products and/or industries. This will offer some protection when events
influence the markets, as not all industries react the same to external influences.

• Make informed decisions. You are entitled to ask as many questions as you need before you make an
investment decision – there are no stupid questions! Informing yourself will also help you steer clear of scams
and fraudsters.

• Knowledge is power. By educating yourself about investing and the shares you want to invest in, you improve
your chances of success. In this way, you will have the money to build wealth not only for your future but also for
future generations.

6. Conclusion
Starting a successful investment journey requires that you at least know the basics of investing, so you can enjoy
the benefits of managing your own money. Investing is a bit like going to the gym: you do not get a six-pack after
only one exercise session.

You become investment-fit by getting used to allocating funds to your portfolio, learning how the financial markets
work, and getting comfortable with all the investment terminology. Initially, your financial advisor should provide you
with investment options to choose from – and even more savvy investors still rely on the guidance of experienced
professionals rather than be solely responsible for managing their risk.

22 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

7. Self-assessment
How will good money choices improve my life?

Why should I start investing as soon as possible?

Why is compound interest such a powerful tool in investment?

How do investing and saving differ from each other?

Which of the golden rules of investing resonate with me and why?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 23

 CHAPTER 2:
MANAGING YOUR MONEY

24 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 1: INSIGHTS FOR INVESTORS

1. Introduction
By developing good financial habits, you can manage your money better. This requires educating yourself about
the world of money, how it works and how you can benefit from it.

Financial customers/investors learn about financial products, concepts and risks through information, instruction
and/or objective advice. Through education, you can develop the skills and confidence to become more aware
of financial risks and opportunities, make informed choices, know where to go for help and take other actions to
improve your financial wellbeing.

Financial education is a process of building financial capability, which means having the knowledge and skills to
understand your financial circumstances and – through that knowledge - the ability to take action to improve your
life.

Financial risk
Actions that can lead to a change in the value of your investment and possible financial loss or gain.

Financial literacy

Financial literacy is a big one because one of the many consequences of poverty is not understanding things
like budgeting or making sound financial choices. Financial literacy is a learnt art. You can only achieve
financial wellness or wellbeing and stability by implementing what you know. Financial well-being is how you
behave around money issues and consistently implement financial education or literacy elements.

- Ms Lydia Zingoni, founder and director of SA Teen Entrepreneur Foundation

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 25

You want to create financial capability and stability for yourself, a place where you are in control and know that
you can meet all your obligations. A place where unexpected expenses and emergencies may arise, but you will
be able to handle those because you will have an emergency fund in place; a place where you have options and
flexibility, allowing you to grow your investment portfolio and plan for your old age. In other words, you must become
financially savvy. For this, most people need to change their financial behaviour and attitude and be willing to adopt
a new approach to managing their money.

2. What research tells us about South Africans and money

In 2018/2019 a research report for TymeBank (More Month Than Money) indicated that South Africans, like many
other nations, have money problems and habits that need improving.

The study highlighted that:

43% of us borrow money to get through the rest of the month after we run out. Of these:
- 9% turn to banks to help them make it through the month
- 20% use their credit cards
- 59% resort to borrowing money from family and friends

Budget/budgeting

A budget is a list of your income (how much you earn/money entering your bank account)
and your expenses (how much you spend/money leaving your bank account). It helps with
managing your money by, for instance, showing where you can save more or spend less.

26 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Research by the Organisation for Economic Co-operation and Development (OECD, 2016) shows that, in South
Africa, the weakest areas in personal finance management include budgeting, planning ahead, choosing financial
products, and using independent financial advice.

It also showed that South Africans:

• do not pay their bills on time (52%)

• have important knowledge gaps that prevent them from achieving success in investing and other
money matters
• have too few financial long-term goals and do too little planning
• suffer from low levels of financial capability
• maintain high levels of debt
• save rather than invest
• tend to do too little, too late, in terms of managing their personal finances

This shows that we have some work to do if we want to get serious about managing our money and our lives –
whether it is freeing up or generating more money to invest, educating ourselves and/or improving the way we
manage our money. The good news is that each of these stumbling blocks can be overcome.

3. Overcoming the stumbling blocks

Each one of us has unique circumstances. To overcome the stumbling blocks that keep you out of the investment
game, you need to identify what stands in your way.

• What keeps you from starting your investment journey?

• A lack of knowledge?
• Low or irregular income?
• Certain beliefs about money?
• People having to support their family members who have no income?
• A dread of budgeting?
• The ostrich effect - putting my head in the sand rather than dealing with the issue?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 27

Let’s look at some reasons that could stand in the way of
your success as an investor.
A lack of knowledge

The way forward is to arm yourself with knowledge. Reading this investment
guide is a first step and an indication that you are willing to learn. Financial
education, specifically investor education, is crucial to achieving success in
investing.

Investing can be complex and very daunting, but not taking the time to
educate yourself can lead to:

• low levels of knowledge, which usually means lower

levels of financial wellbeing
• sticking to saving, rather than complementing your
savings with investments
• not setting proper short- and long-term goals
• poor and potentially damaging decision-making when markets demand
action from you
• making costly tax decisions
• falling prey to scams.

Investing is not a gambling game but one of analysis with a reasonable expectation of profit. Gambling entails
putting your money at risk in the hope that something good will come of it, like acting on a “hot tip” you heard
somewhere.

While there is always a risk and no guarantees, real investing is much more than hoping that luck is on your side.
It requires work on your part and knowledge serves to protect you in your quest.

Beliefs that hinder your progress

• I don’t have enough money to save or invest
Very few people think they do until they start budgeting and realise that they can find
some money they are willing to save and/or invest.

Example:

You can start with the simple act of initially putting away R25 a week. That may not seem
like a lot, and you may not think it will make much of a difference to your life, but before
you know it, after one month, you have R100 in your savings account and R600 in 6
months. In a year, you will have R1 200, and this is without interest earned.

The idea is to eventually save or invest 10-15% of your income. The real amount depends
on what you earn and your unique circumstances. The message is to start with small
amounts of money and then to increase the amount as you become more comfortable with
the process and start making saving a habit.

Put your savings in an account that is separate from your other accounts. When your savings is large enough, you
can take some of this money out and move it into an actual investment vehicle of your choice. In this way, you will
grow your money and attain a measure of financial freedom.

28 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 I’m too afraid of losing everything – what if the market crashes?
Therefore, you must learn as much as you can to make informed decisions that limit your risk.
Working with an authorised financial advisor is your best option while learning. Just start, even
if you do not have much money to spare. Investing even small amounts can reap huge rewards
in the long term. The longer the term, the better the results you can achieve.

I don’t trust the system

This may be because you do not understand the system. Again, learn as much as you can so that you
know how it works and why it works that way. There is no such thing as easy money, so stay away from
“quick-rich schemes”. Also, make sure you understand the costs associated with your savings
account and your investment vehicles.

I am too young – and you only live once (YOLO)

Exactly – you only live once, and you should therefore start saving and investing as early as you can,
preferably as soon as you earn your first salary. You can spend all you earn now and struggle
later in life, or you can plan for a better life by investing early.

Money doesn’t buy happiness

This is true, but good money management, and the resulting financial security, will certainly go
a long way towards a better, secure and happier life for you and your family.

I already belong to a pension fund

Pension funds are an excellent savings tool but usually don’t provide enough money for the
real, everyday lives of retirees. Life is expensive, and inflation takes its toll. If you can, invest in
more than just your pension fund to be able to maintain your acquired lifestyle.

It is too expensive; I can’t afford it

The result of proper and honest budgeting may surprise you. Most people can find some money
to invest, even if it is just R25 per week. Give some thought to your expenses – do you mostly
purchase items that you want in addition to what you need? (You can read more about needs
and wants in the next chapter.)

I don’t understand what financial people are saying

Financial language (terminology) can sound complex and confusing, but you can get a better
understanding. Never just accept what you are told without understanding what is meant
exactly. Do not be afraid to ask questions. This is about your money and your future.

Pension fund Pension payment

A pension fund is a retirement plan in which Payment of a sum of money

an employer, and most often the employees, made periodically by an employer
make contributions into a pool of funds set or a fund, in consideration of past
aside for the workers’ future benefit. service or on retirement.

Financially assisting family members in need

“Agree upfront on the amount of money you are prepared

to part with and make it clear that you cannot provide
any more than that. You may have a responsibility to
look after your family. Still, they too have a responsibility
to look after what you give them.”

- Gugu Sidaki, Personal Finance author

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 29

• Family members expect me to look after them
People are often asked or expected to look after family members who have financial difficulties. This trend is
often referred to as family tax and needs to be managed carefully.

• Budgeting is boring
Initially, budgeting may feel like a tedious burden, but that will soon change into excitement when you start to
understand where your money is coming from, where it is going, and how the changes you can make will open
the door to saving and investing. It soon becomes an empowering exercise and a lifelong skill that you practise
monthly until it becomes a habit.

• We don’t talk about money

Unfortunately, we do not talk much about money in society. We need to make a habit of talking about money
constructively with our children and partners. We should discuss how to be responsible with money and how to
grow and keep it. It is possible to work towards changing the status quo – and by planning together as a family,
we can make generational wealth a reality.

IMPORTANT: By now you have seen the words “authorised financial advisor” quite a few times already, and
not without reason. Choosing the right advisor is one of the most important investment decisions you can
make.

Please take note that everything you need to know about seeking advice and choosing a financial advisor
is discussed in chapter 3, under heading 7: Seeking advice: financial advisors,
with more information in chapter 7.

4. A new approach to managing

your money
We now know that the key to building wealth is
education (academic and in personal finance),
developing good money habits, removing hurdles
that prevent progress, and adopting a new approach
to managing money.

How does one go about adopting a new approach?

You start with the basics:

• Know what money is coming in and going out.

• Always try to work within a budget.
• Reduce and avoid unnecessary debt.
• Set goals for the present, the near future and the
distant future.
• Start to save.
• Be honest with yourself about your finances.

These basic steps are part of a process known as

financial planning, which we will look at in more detail
in chapter 3.

30 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

You work on changing your mindset

Avoid the seduction of credit

If you only pay the minimum due on your credit card, you will remain indebted for decades. For example,
if you owe R20 000 on your credit card, with an interest rate of 20% and only pay the minimum amount of
3%, it will take almost 25 years to pay it off. Only paying the minimum on your credit card is just not a good
financial choice.

Maya Fisher-French, Personal Finance author

A 2021 survey by global financial services giant BlackRock shows that 57% of people are not investing. Yet the
survey found that when people do take a step to invest, they create a greater sense of wellbeing.

Unfortunately, not changing your attitude to money management or investing will cost you dearly in future in lost
time and lost profits. Suppose you want to start building wealth and want to become financially free, in that case,
you need to stop relying on your cheque or savings accounts or hoping you will win the Lotto. To obtain something
greater, you must do something different today.

• You get to know yourself better

Even though all investors want to make a profit, you come from diverse backgrounds and have different needs.
People have different personalities and expectations. Knowing who you are will make it easier to choose
investment methods that are suitable for you.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 31

• You think twice about purchases and other money choices

Your choices affect how your life unfolds, with good choices yielding positive results and poor choices leading to
problems and regrets. Let’s look at an example. You want to buy a car and you can just afford the monthly payment.

You can go ahead and buy the car, or stop and ask yourself a few questions first:

- Do I want to take on more debt or live as debt-free as possible?

- Can I afford the monthly payment for the next 5 years?
- Will I have to consider a residual or balloon payment deal, and will I be able to refinance the vehicle if necessary?
- Have I taken the extra costs into consideration, such as rising interest rates, maintenance, and insurance?
- Do I have enough funds in my emergency account for unforeseen expenses?
- Should I be putting money away for my children’s education?
- Should I be saving more for retirement?

After answering these questions, do you still feel that you can afford the car? What will your life look like in 10 or 20
years if you make this choice today?

Remember that the road to investing begins with saving. Here are four
practical tips to start saving:
Live within your means

This means you should have a realistic budget, and you should stick to it. Plan for
R
events such as car services, school fees, stationery, uniforms and holidays, as
well as your regular monthly expenses.

Be selective about debt

Most people cannot pay cash for a house or a car. However other personal
loans, credit cards and revolving credit could be avoided.

Have an emergency fund

This is crucial! You should keep between 3-6 months’ salary/income saved in an account. You should have
immediate access to this money when needed – but not in your cheque account, where it is too easy to spend
and earns no interest. Make sure that you do not cause unnecessary emergencies through lack of planning
(see the first point in this table about living within your means).

Have constructive long-term goals

Think of retirement as an example – your goal setting will determine if you can retire well i.e., enough money
to retire comfortably.

5. Conclusion
In this chapter, we looked at what it takes to better manage your money by exploring hurdles that may keep you out
of the investment landscape, and how you can change your approach and mindset for success.

If there is one lesson that 2020/2021 has delivered – the year the Covid-19 pandemic changed our lives – it is
that the future will surprise us and that predicting what will happen is almost impossible. This does not mean
that inaction is the most appropriate response. Even in times of uncertainty, planning for the future remains
important. The next chapter will deal with financial planning.

32 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

6. Self-assessment
What is investor education about?

How would you define financial capability?

Which beliefs do you have that may hinder your progress as an investor?

What are your feelings about family tax?

Which of the golden rules of investing resonate with me and why?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 33

 CHAPTER 3:
FINANCIAL PLANNING

34 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 1: PLANNING AND SETTING GOALS FOR
BEGINNER INVESTORS

1. Introduction
Do not be a payday millionaire! Fun for a few days and hardship for the rest of the month never made a real
millionaire and neither did living from payday to payday. What can open the door to financial wellbeing, however, is
financial planning and setting up your own financial strategy. A personalised financial strategy will help you create
that ideal of having money throughout the month. A personalised financial strategy will bring you to the point of
getting through the month with cash to spare, which you can then use toward investing.

Developing a solid financial strategy or plan will help you save money, afford the things you really want, and achieve
long-term goals like investing for education and retirement. A financial strategy starts with your income. We are
looking for the best way to move from mere saving to investing and meeting your financial goals. Consider the
following points:

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 35

 How can personal financial planning help me? Personal financial planning can teach me how to
save and invest my money wisely to reach my short,
medium and long-term goals.
What is the importance of goal setting? Setting goals puts me on a path to financial freedom,
removing some of the stress that I could experience if
I did not plan for the future. Achieving these goals is
an extremely satisfying feeling.

Why do I need an action plan? This will help me to set smaller, more manageable
goals on the road towards achieving some of my
bigger goals. Taking small, easy steps and achieving
minor goals helps me to keep focused and motivates
me to continue.
What is the next step? Once you have determined your goals and your plan
of action, create a budget that will allow you to start
investing.

Financial planning should help you to:

• analyse your current financial situation

• grow your financial wealth
• improve or maintain your current and future financial situation
• consider the tax implications
• plan for retirement
• save for things you need or want.

In order to do this, we will have a closer look at:

• setting goals
• your life experiences and your money
• budgeting
• having an emergency fund
• understanding investment timeframes
• seeking professional financial advice.

Note: Towards the end of this chapter, there is a section for intermediate and advanced investors.

36 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

2. Setting goals
The first step to take when setting off on your investment journey is to identify the reasons you want to invest. It
becomes easier to make sacrifices and achieve success if you set clear goals as part of your personalised financial
plan.

Financial advisors will tell you that your financial plan is the link between your goals and your investments, and the
investment returns you require to achieve those goals. Your financial plan also helps:
• to understand the risk of your investment choices, and
• ensures that you know about and are comfortable with the possibility of not achieving your goals, should those
risks become a reality.

Do not be afraid to set ambitious goals – dream big but be realistic.

Direction: Setting goals gives you a target to work towards. With a clear understanding of what
you are aiming for, you are more likely to stay focussed, stick to your budget and continue to work
towards your goals.

Motivation: When you invest, you need to be prepared to work continuously toward your goals. By
setting goals that are important to you, you give yourself the tools that provide you with purpose and
the energy to remain disciplined in your efforts.

Accomplishment: Goals are a great motivator, but if you only work towards the end result, it
becomes difficult to continue on your path. Set small attainable goals that you can celebrate as you
work towards your final goal. It is these small victories that will help keep you motivated to reach
your final goal.

Accountability: It is easy to convince yourself to skip an investment payment unless you hold
yourself accountable or try and be accountable to a significant other. If you have a set goal you are
working towards, you can honestly judge what is important and what is not.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 37

2.1 Setting your investment goals

Finding and setting investment goals that work for you can be a fairly simple process. When deciding on your
investment goals, make sure to include your investment time horizon, how accessible your money should be
(liquidity needs), and how much risk you are willing to take (risk tolerance).

The following steps will guide you in the right direction.

Step 1

Write down your goals.

Whether you use a financial app, pen and paper, or an Excel

spreadsheet, clarify your goals and go over them again later to
review or perhaps adjust them.

Step 2

Set your boundaries and define your steps by using the SMART goal
framework:
• Specific: Make each goal clear and specific
• Measurable: Frame each goal in a way that is easy to measure
• Achievable: Set goals that are achievable
• Realistic: Set realistic and relevant goals
• Time-based: Attach a timeframe to your goals so that you can
track your progress

Are your goals short, medium or long-term?

Short-term goals are set for targets you want to reach quickly.
Examples include:
• going on a holiday that requires travel long-term
• paying off debt (e.g., a furniture account)
• building an emergency fund to cover your
expenses in case of an emergency (a good
rule is to save enough to cover three months
of expenses when you are young and single
and six months when you have greater
financial responsibilities like being
married with dependants).

Short-term goals can also be used as short-term

stepping-stones on your journey to
achieve a long-term dream.

38 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Medium-term goals are suitable for items that will take you between two and three years to save for.

Examples include:
• saving for a deposit on a car
• saving for a deposit on a home
• paying off a study loan

Long-term goals generally focus on retirement planning and other investments so that you have enough to live
on when you get to the point where you are too old to work. Generally, targets that you set beyond five years are
considered long-term goals.

Step 3

Prioritise your goals

To establish how important your various goals are to you, complete the
worksheet below. If you have a spouse or partner, ask them to complete
their own worksheet. In this way, you can see to what extent the two of
you agree on your financial priorities.

PRIORITISE YOUR GOALS

Rate each goal based on how important it is to you.

1 = is not at all important; 5 = very important

Paying off long-term debt, e.g., home loan 1 2 3 4 5

Paying off short-term debt, e.g., clothing account 1 2 3 4 5

Control spending 1 2 3 4 5

Saving for education 1 2 3 4 5

Saving for retirement 1 2 3 4 5

Understanding my investments 1 2 3 4 5

Knowing I have the right investments for all my life stages 1 2 3 4 5

Active involvement in managing my investments 1 2 3 4 5

Looking for ways to make the most of tax advantages and benefits offered 1 2 3 4 5

Being able to retire at your desired age, i.e., 55, 60 or 65 1 2 3 4 5

Providing a comfortable lifestyle for my family in the event of my death 1 2 3 4 5

List any other financial goals or objectives: 1 2 3 4 5

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 39

 Step 4

Create an action list as a guide that can be reviewed and updated as you work towards your goal.

Let’s have a look at how Linda and Paul did it. Linda and Paul were struggling to get through the month
despite both having permanent jobs and living with Paul’s parents. Linda is a shop assistant at a large
department store and earns R5 500 per month. Paul is a security guard at a shopping centre and earns R7
000 per month. Together they earn R12 500 per month. They decided to take a serious look at their money
management and worked out the following action list to reduce their spending.

Paul and Linda’s example:

Linda’s goals Action steps Amount Review date Progress

saved per made one
month year later
Paying off all clothing accounts Only buy with R 300 R 3 600
Monthly
cash
Save for education Make own R 400 R 4 800
Monthly
lunch
Reduce social spending Socialise at R 300 R 3 600
Monthly
home
Total savings R 1 000 R 12 000

Paul’s goals Action steps Amount Review date Progress

saved per made one
month year later
Reduce social spending Socialise at home R 400 Monthly R 4 800
End gym membership Jog in the R 400 Monthly R 4 800
mornings
Share rides to work Find three people R 350 Monthly R 4 200
to share rides and
cost
Total savings R 1 150 R 13 800

To their amazement, Linda and Paul found that they had a lot of unnecessary
expenses. Linda could save R1 000 per month or R12 000 per year, and Paul R1
150 per month or R13 800 per year. Together they would have R25 800 per year
available for investment or saving. Excited about their new knowledge, they decided
on the following actions:

• Each to save 5% of their earnings before deductions such as tax and unemployment
insurance for a personal dream they want to come true.
• The rest of the newly available money would go to a retirement savings plan.

40 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Linda and Paul Action steps Amount per Review date Progress made
month one year later
Linda: Pay me first Save 5% of earnings before R 225 Monthly R 6 600
deductions
Paul: Pay me first Save 5% of earnings before R 350 Monthly R 8 400
deductions
Start a retirement See financial advisor R 1 575 Monthly R 18 900
savings plan

By saving small amounts every month for their own use, after a year Linda had R6 600 in her savings account
and Paul R8 400. By keeping their minds firmly on their long-term goal of a comfortable retirement, they were
able to put R18 900 per year in a retirement fund.

Step 5

Regularly review your goals.

The more you focus on your goals, the more you subconsciously create pathways to success. Regularly
reviewing your goals helps you to gauge your progress. If you set smaller targets on the road to your big
goal, you will get a sense of progress that will motivate you to keep moving forward.

Example:
After working hard for a year or two, Linda and Paul are promoted
and receive an increase each. They set a new goal: To move out of
Paul’s parents’ house and buy their own home. They want to save for a
deposit of R100 000, which seems like an impossible amount.

Instead of looking at the total amount they break it down into small-
er chunks. They work out that they can afford to save R20 000
per year, which is R1 666.66 per month. Now it looks much less
daunting!

They now know that it will take them five years to save for their
deposit, or even less if they can get a favourable interest rate and
save any extras, like an annual bonus, as well.

Did you know?

The FSCA has many useful calculators, one of which is Saving for a goal. Follow the link
below to test it out! https://www.fscamymoney.co.za/Pages/Calculators/Savings-and-Re-
tirement.aspx

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 41

 Pay yourself first

By paying yourself first, you are putting away some cash for yourself, whether that’s into a savings or
retirement account. Make sure you set aside a portion of your income to save. Thinking of personal
savings as the first bill you must pay each month can help you build tremendous wealth over time.
Investopedia.com

Keep in mind that your goals will be unique to you. Everybody’s financial goals will be different, depending on
their life experiences.

3. Your life experiences and financial planning

Life experiences bring with them financial consequences that may affect your investing plans.

These experiences may include:

• education
• career
• family
• relationships
• big purchases
• starting a business
• death

42 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

• Matriculation (completing school)

Your last year of high school is exciting but also a bit scary. You are on the verge of a new phase – your life as
a grownup. What will be next? Where to from here? There are important questions to ask and to answer by the
time you get your grade 12 certificate, such as:

• Am I going to study after I have matriculated?

• What am I going to study and where?
• How many years will it take me to graduate?
• How much will it cost me to study further?
• What kind of scholarships, bursaries or student loans are available?
• Will I apply for a student loan?
• Where am I going to apply for a student loan?
• What is the interest on a student loan?
• When and how do I start paying off my student loan?
• How will I earn money while I am studying?
• If I do not study after grade 12, what am I going to do?
• Where will I live?
• How much will it cost for me to pay my own way? For example, to pay rent, buy food, clothes and pay for
transport.
• Do I have family members (siblings, parents, grandparents/relatives) who depend on me financially?
• Do I have to put my studying dreams on hold for now to support my family?
• Can I work and study at the same time?

Graduation from a tertiary institute

• Once you have completed your studies at a college or university, you again
need to make some important decisions. What do you want in life? How are
you going to achieve that?
• Where will I apply for jobs or do I want to work for myself?
• What bank account am I going to put my salary or business income into?
• What bills and expenses will I need to pay for? (For example, rent, student
loan, food, clothes, entertainment, transport, etc.)
• Does the money I make cover all my expenses? Insurance
• If I do not make enough money to pay all my bills, what will I do to get more A way to protect yourself
money every month? against losses like
• Am I planning any big purchases soon, e.g., buying a car? death, theft, accidents
• Are there any insurance policies that I should have? and so on.
• When should I start saving for retirement?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 43

 Ask similar, focussed questions at all stages of your life.

Career changes: You may want to change your career for new challenges or to earn a better
income. You may want to start your own business or move into a different industry. This is
a major life change. You should equip yourself with as much information as possible before
making drastic financial decisions.

Losing a job and becoming unemployed: Job loss is frequently unexpected and extremely
upsetting. Unemployment can lead to huge financial, physical and emotional stress. You may
find yourself unable to pay your bills, or you may even have to consider going into debt review.
These financial issues must be dealt with head-on rather than ignored.

Getting married: From a financial point of view, getting married allows us to share costs and
plans, but there are also financial challenges and risks. By planning your finances together,
you can make sure that both your needs are met. The key is sharing decision-making and
being completely honest about your finances prior the marriage.

Live-in partner (co-habitation): Moving in with a partner or getting a place together is a huge
step in any relationship. When you have decided to move in together, the relationship now
moves from a “lovey-dovey” perspective to a “business” perspective when it comes to making
financial decisions.

Starting a family: Whether you are having a baby, adopting a child, or dealing with an
unplanned pregnancy, you are starting a family. While nothing can quite prepare you for the
changes about to happen, one area that you can get a handle on is your finances.

Blended families: Financial planning when preparing for a new marriage or relationship (with
or without children from previous relationships) is always a challenge, but it can be even
harder when you are trying to blend the budgets of two families.

Divorce: Parting ways is never easy. From a financial point of view, costs have been shared,
but after a divorce - they will still have to be carried individually.

Buying a car: Once you’ve passed your driving test, you’ll want to get your own set of wheels.
But do not be too hasty. If you want to finance your car, you will be subjected to an affordability
test to ensure that you do not over-extend yourself. Financing a car is a long-term commitment.
Apart from the insurance premium that needs to be added to the monthly car payments, you
will also need to budget for fuel, car services and unexpected repairs.

Buying a house: Buying your first home is a milestone. It is a major decision that takes
planning, research and careful budgeting.

Becoming an entrepreneur: Successful businesses do not happen overnight. They take

blood, sweat, and build-up! Everybody who starts a business does so to make money but very
few start-up businesses make money in the beginning. By starting a business, you are helping
to grow the economy of South Africa.

44 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Entrepreneur

One who undertakes a business with the possibility of

either profit or loss.

Retiring: As you get closer to retirement, you will need to make some big adjustments. As with
all major lifestyle changes, your income will probably also change. You must start saving for a
comfortable retirement as soon as possible.

The death of a family member: The sudden death of a family member is traumatic and
painful. It brings a lot of financial decision-making, particularly if the deceased did not make
many plans for his or her dependents.

Planning for your funeral: Funerals form an important part of our cultural life. In many cases,
families spend far more than they can afford to bury their loved ones, resulting in situations
that may land them in debt. Often, over-spending happens to keep up social appearances.
Planning for funerals should not be driven by emotions or family pressure but by sound deci-
sions that will not end in debt.

Whatever life experiences come your way, you must be prepared by thinking about what would need to be
doing and how you would go about it. The assistance of an authorised financial advisor is strongly
recommended, especially once you are employed or earn an income in any form or at different periods i.e.,
monthly, yearly, bi-monthly, weekly etc.

4. Budgeting
Do not spend more than you earn. Easier said than done,
right? Well, it is not all that difficult if you learn one
important life skill early and that’s how to budget.
It will take a bit of your time, but your
decision to do it will be worth your while.

To draw up a budget is often seen as

boring but is, in fact, it is the first step to
creating wealth. Budgeting can help you live
within your means and make the most of your money.

Budgeting is telling your money where to go instead of

asking where it went!

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 45

4.1 What is a budget?

A budget is an estimate of what you expect to earn and spend over a period of time.

A monthly budget allows you to understand how much you spend and what you typically spend your money on.
Anyone can budget, even if you do not earn a salary. Just list whatever money comes in and what your regular and
irregular expenses look like.

Budgeting does not need to be complicated or tedious. In fact, it gives you a better understanding of yourself and
allows you to make more informed choices. It helps you to manage your money better and thus live a better, more
fulfilling life. It is, therefore, well worth the effort.

Irregular expenses

Expenses that do not come up every month. Examples of

irregular expenses include medical expenses, car repairs,
household repairs, school fees if paid per term, school clothing
and books, holidays, gifts and birthday expenses.

Smart money tips

• Watch out for get-rich-quick schemes and scams.
• Beware of the dangers of excessive credit.
• Save for the things you want and use cash when you can.
• Plan for your retirement from the day you start working and don’t cash out
the money during your working years.
• Stay up to date with your changing financial needs.
• Only deal with authorised financial service providers/advisors/brokers.
• Shop around for financial products that suit your needs and your budget.
• Insure your assets where necessary.

4.2 Why is budgeting so important?

Budget teaches you financial discipline and how to separate what you need from what you want.
Needs: Things you cannot live without, for example, food, water, shelter, clothes, education, etc.
Wants: Things you can live without, for example, branded clothing, smartphones, takeaways, etc.

South Africans are among the hardest workers in the world, spending on average almost 43 hours at work per
week. If you are going to spend so much time earning an income, you need to make sure that your money is going
towards the things that are important to you.

Think of a budget in this way:

- It is a plan that gives each Rand you earn a purpose.
- You know where your money is going before the month begins, allowing you to save better and spend only on
what you need.
- It will help you stay focussed and work towards your short, medium and long-term goals.

Other reasons to create a budget:

- Obtain clarity on how you spend your money.
- Stop fighting about money with your partner or family.
- Break the payday-to-payday cycle.
- Separate your needs from your wants.
- Only spend money you have.
- Get out of debt.
- Save/prepare for financial emergencies.

46 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

4.3 How to start
You can do the following with a pen and paper, on an Excel spreadsheet or using a financial app, whichever is most
comfortable.

STEP 1 Make a list of all your income.

STEP 2 Make a list of all your expenses. Keep your receipts in a box and identify which expenses are
wants and which are needs. You can also compare your receipts to your bank statement.
STEP 3 Add up all your income.
STEP 4 Add up all your expenses.
STEP 5 Subtract your expenses from your income.

If your total expenses are more than your income, you need to make some changes. This means that you spend
more than you earn. See where you can cut your costs (start with the “wants”) so that your income is more than
your expenses. If at the end of your pay-check month you are short of money, then it is clear you are spending
more than you earn.

Could you, for instance:

take a lunch box to work or school drive a cheaper car? But make sure
instead of buying lunch? it is reliable

cook from scratch instead of keeping

curb your cigarette and alcohol
ready-made meals in the fridge or
expenses?
buying take-aways?

keep visits to restaurants, bars,

shebeens and coffee shops to the spend less time in the shops?
minimum?

cancel your gym contract if you have spend less on luxury clothing and
not been there lately? technology?

start paying off your clothing

live in a cheaper place?
accounts and all other accounts?

start a side job and generate

undertake to take on no more debt? additional income?

If your total expenses are less than your income, you also have decisions to make. How are you going to pay off
debt, save or invest that extra money? Paying off your debt is most often the best immediate investment.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 47

4.4 Sticking to your budget
Sticking to your budget is crucial in achieving your goals.

STEP 1 Do not spend more than you have planned to spend.

STEP 2 Keep track of your expenses.
STEP 3 Update your budget monthly (actual vs planned spending).
STEP 4 List expenses by category and not by the place you made your purchase (for example, list
“Groceries”, not just “ABC Supermarket”).
STEP 5 Pay bills on time.
STEP 6 Compare your budget with your actual expenses each week.
STEP 7 Adjust your budget where necessary.

4.5 Tracking your expenses

A tracking spreadsheet will give you a snapshot of your overall spending. It will also help you to identify areas where
you are spending too much.

Take your receipts out of the box at the end of every week to sort them into categories such as groceries, vehicle
expenses, entertainment, etc. You can also take photos of your receipts and keep an electronic log of your receipts.

Write down the categories on a spreadsheet like this:

MONTHLY TRACKING SPREADSHEET

Category Week 1 Week 2 Week 3 Week 4 Week 5 Category Total
Groceries
Household
Transport
Personal care
Entertainment
Banking fees
Other
Monthly total R R R R R R

By tracking your income and expenses, you gain insight into your financial situation. You can now make informed
decisions about where to make changes that can pave the way to your financial security.

48 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

4.6 Example of a budget

Example of a budget
January January February February
Budgeted amount: What you plan to spend Budgeted Actual Budgeted Actual amount
Actual amount: Your real spend amount amount amount
INCOME (YOUR EARNINGS)
Salary
Child support/grant
Other income
SUB-TOTAL INCOME (I)
EXPENSES (EVERYTHING YOU HAVE TO PAY)
Fixed costs (Costs that do not change from month to
month)
Rent/Home loan/bond
Vehicle finance
Short-term insurance (e.g., vehicle cover)
Medical aid/Hospital plan
School/Crèche (day-care) fees
Retail store accounts (e.g., furniture account)
Cell phone contract
Internet contract
Magazine/Newspaper subscriptions
DSTV
Personal savings/Emergency fund/Investments
Gym
SUB-TOTAL FIXED COSTS (F)
VARIABLE COSTS (COSTS THAT CHANGE FROM MONTH
TO MONTH)
Transport, e.g., petrol and taxi fare
Utilities (water, sewerage and electricity)
Groceries
Clothing accounts
Entertainment (eating out, takeaways, movies)
Medication
Cell phone airtime/data (PayAsYouGo or TopUp)
SUB-TOTAL VARIABLE COST (V)
Other expenses
Contribution to events (e.g., gifts, funeral)
Vehicle repairs
Haircut/Salon/Beauty treatment
Stationery
TV licence fee (annual or monthly)
Vehicle licence renewal (annual)
SUB-TOTAL OTHER EXPENSES (O)
TOTAL INCOME (I)
Total Expenses (F + V + O)
SURPLUS OR DEFICIT (TOTAL INCOME – TOTAL
EXPENSES)

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 49

 Deficit
When you spend more than you earn you will have a deficit (negative balance/shortfall).

4.7 Tips for better budgeting

When you spend more than you earn you will have a deficit (negative balance/shortfall).

Pay yourself first:

You may have come across this expression before. It simply means ensuring that you set aside
some money to save or invest before you start allocating money to your monthly expenses – even
if it is only R100. Many financial advisors consider this a golden rule of personal finance success.
Finding ways to save allows you to avoid the stress of taking on debt in an emergency. Think about
how much you would ideally like to save each month and how you can cut back on just a couple
of small costs each month, like a few coffees on the go or one takeaway meal.

Set financial goals:

It is important to work towards something in life rather than just spend or save with no goals in
mind. Having a goal keeps your eye on the ball, making it easier to live within your means and
work towards something that will make you happy later, like buying a home or going on a well-
deserved holiday. It also helps you to make smarter financial choices rather than acting on sudden
wishes or ideas.

Draw up a monthly budget:

Record your income and expenses each month and highlight recurring or high expenses
to understand your spending patterns. If you overspent in January, can you make up for it in
February? A monthly budget gives you a clearer, more holistic picture of what your expenses will
look like for that year.

Tell it like it is:

If you buy groceries, list them as groceries – do not just say: “ABC Clothing, R1 000”. With some
retailers, you can get clothes, groceries and even furniture at one store, which can make it difficult
to track. However, by categorising the things you spend money on, you get to see what spending
your money on, rather than just how much you are spending.

Plan for additional expenses:

Set aside extra savings for expenses that do not occur every month, like gifts, special occasions,
school outings or an unexpected trip home/funeral. That way, you will not be caught off guard and
have to take credit, a loan or overspend on your budget to furnish these expenses.

Be careful of cash leakage:

If you tend to buy on impulse, subscribe to apps or programmes you soon lose interest in, or pay
for a gym membership but seldom go, it is time to make some changes. You are ‘leaking cash’ that
you can put to better use elsewhere. Revisit your budget.

Pay for what you need, not what you want:

Be clear about the difference between needs and wants. You may think you need a new set of
wheels, but do you need it to get to and from work or to impress your friends?

Avoid the debt trap:

Be honest about your finances. Think about the consequences of taking on debt and not about
how good you’ll look in a new outfit. It is easy to spend the bank’s money, but it must be repaid
with interest. Instant gratification has consequences. A good strategy is to pay off current debt and
avoid taking on more debt as far as possible. Over-indebted people struggle to create wealth and
achieve financial freedom because they keep taking on more debt, upon debt.

50 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Pay attention to your spending:
When you budget, pay careful attention to what and where you spend and see if you can cut down
on these expenses. Could you set a goal of buying new sneakers once a year instead of every
six months? Make a note of what you spend daily, weekly and monthly to get a good sense of
your spending patterns or habits. Keep all invoices and receipts and examine your bank account
statements. Include items like transaction fees, banking fees, interest charges as expenses. See if
you can find ways to save yourself money – could switching to another banking product or another
bank make a difference? Small adjustments can save you money in the long run.

Pay on time:
Make sure you pay all your bills on time or before time. Ensure that you have enough money in your bank
account for your debit orders. You do not want your debit orders to bounce – because with this also comes
additional charges from your bank and your creditor who is debiting your account. This can also
affect your credit score negatively, which means that banks may be reluctant to lend money to
you, if at all, or you will pay a higher interest on debt as you will be a high-risk borrower.

Budgeting as a family:
Families can set goals, too. Creating a budget gives family members something to work towards,
together. They will feel less resentful about making sacrifices over the short term if they know the
outcome will be favourable over the long term.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 51

 Expensive temptation

Temptation can be expensive, especially if you go into debt to satisfy your immediate desires. But it will cost
you a lot more if instant gratification distracts your long-term savings goals. -

Mags Heystek, CFP®, Brenthurst Wealth Management

Did you know?

The FSCA provides a free budget template that you can download to use. Visit https://www.
fscamymoney.co.za/Pages/Calculators/Budget-Templates.aspx Start budgeting today!

5. Why you need an emergency fund

The Covid-19 pandemic hit the world and South Africa in the early 2020s and the lockdown measures to prevent the
virus from spreading at home and other countries left many people, families, and businesses with a reduced income
and, in some instances, without any source of income. This left those who did not save for the proverbial ‘rainy day’
exposed, regretting their lack of emergency funds as the Covid-19 pandemic turned the most unexpected ‘what if’
scenario into a harsh reality.

It taught us that having an emergency fund is vital to any individual’s financial strategy. Apart from losing your job or
main source of income, unforeseen expenses such as medical bills, vehicle and household repairs, funeral costs
or even a child’s sports tour can place any household budget under pressure if there is nothing left after paying
regular expenses.

Create an emergency fund

“When you are in your 20s, start this fund as soon as possible, even if you start small. This is the bedrock
of every good financial plan or budget. Your first step is to have R10 000 and over time build up to at least
three months of expenses. This is what stops you from getting into debt when a crisis like retrenchment, an
unexpected medical bill, etc. hits. Even if you do not face a crisis, it will remove financial stress and anxiety.”

Maya Fisher-French, personal finance author and public speaker

52 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Households living from payday to payday are a common reality and may force people to cash in or sell some of
their investments, take out a loan, or use credit cards to pay for unexpected expenses.

How much you need to save in your emergency fund differs from person to person. Most financial
advisors agree that 3 to 6 months’ living expenses is the ideal amount to protect you against a sudden loss of
income or surprise expenses. While life is expensive, and budgets are under pressure you must start somewhere,
irrespective of how much you initially contribute to your emergency fund every month.

5.1 How to start an emergency fund

To save means you have decided to use your money at a later stage for specific purposes. Ideally, you would like
to reward yourself for showing discipline and self-control by saving in an account that earns you the best interest
on the money you save.

5.2 Factors to consider when starting an emergency fund

Instant access: The money you Stability: Invest your money in Inflation: If you plan to use your
save needs to be easily available an account or financial product savings in an emergency in the
when you need it. that offers stable returns, as you future, your money’s purchasing
might need to use this money power must stay the same. If
during less stable economic you allow inflation to lessen your
times. buying power, it defeats the
purpose of saving. Make sure
that you put your money where
you can earn an inflation-beating
return, for example in a money
market account.

6. Understanding investment timeframes

Knowing why you are investing will help you define your investment timeframe and plan your investment strategy.
Knowing your timeframe will help you decide how long you plan to invest and what kinds of investments to choose.

Timeframes, or time horizons, refer to how long you can invest. For example, when a young man
invests to make provision for his retirement, his investment time horizon is several decades, presuming he starts
saving at age 25, retires at 65 and lives to 80. But if you are saving for a deposit for a house, your investment time
horizon may only be two or three years.

As a rule of thumb, the more time you have to invest, the more risk you can take. The value of shares increases
and decreases all the time but generally shows an upward line over a longer timeframe. When you want to invest
for less than five years, the volatility of share prices may put you at a disadvantage.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 53

7. Seeking advice: financial advisors
Choosing the right advisor is one of the most important investment decisions you can make.

Financial advisors give out general and specific financial advice for a fee (which may consist of the commission
an advisor earns on a product they sell you) and may manage client assets and his or her investment portfolio
construction. They are your link between financial service providers (FSPs) and the investment (vehicles) products
that help you achieve your goals.

An authorised financial advisor has the expertise and experience to help you navigate the complex
investment environment and teach you the principles that will help you achieve your financial dreams and make
sound investment decisions.

For example, calculations around life expectancy, replacement ratios and declines in investments or funds are
often complicated, and as a consumer, you might not be aware of all the financial products on offer. This is where
the help of a professional can be invaluable.

Assets

Things you own that have value, for example, a house, a car,
furniture, an investment portfolio, etc.

Underlying assets
These are the assets owned by a portfolio.

IMPORTANT:

An unauthorised financial advisor may give you information that is not rooted in a deep-seated,
academically qualified background. It may lead to incorrect advice and big financial losses. Investing on your
own, for instance online, via robo-advice or on tips from your friends and family may also be risky. Always
work with an experienced, authorised financial advisor.

As an investor, it is important to have a trusted partner to walk this path with you. There are various areas in your
investment journey where an authorised financial advisor can assist and add value:

• Legal: There are so many different laws that can apply to your investment portfolio. Your advisor will be able
to assist with ensuring that you comply with all legal requirements. Take note that financial advisors must be
registered as tax practitioners to be able to provide tax advice. If that is not the case, a separate tax advisor is
required.

• Products: Once you start looking around to invest, you will realise there are countless investment products
available – each looking more attractive than the other! Your financial advisor can help you make the best
choice to ensure the products in your portfolio are suited to your individual needs and objectives.

• Goals and objectives: Your investment goals and objectives are not always clear. Your financial advisor can
help you to identify these, ensure that they are realistic, and compile a plan to help you reach your goals in the
long term. Regular meetings with your financial advisor will help you to stay on track with your goals and make
changes when required.

• Emotions and decision-making: It is easy to underestimate the degree to which emotion influences our
decisions – but it is so important! Making investment decisions based on emotion can be extremely costly in the
long term, and this is where your financial advisor will step in and help guide you to make the logical decisions,
even if this is not the easy option.

54 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

7.1 Why you should get financial advice

The right kind of financial advice will help you:

• set your financial goals to make sure they are realistic and achievable
• stay on track with your finances
• make your money work for you
avoid expensive mistakes
• protect the things that you own
• make the financial environment easier to understand
• secure your standard of living
• protect your income.

7.2 How does your financial advisor create your financial plan?

A good financial advisor is interested in you as a person and not just in your goals and finances. By following the
internationally recognised six-step process, they will create a financial plan that is unique to your financial situation
and goals.

7.3 The six-step process

Step 1: Establish and define the client relationship

Your financial advisor must:

• clearly explain the services to be provided to you

• define your responsibilities and theirs
• explain how they will be paid and by whom
• help you decide how long the professional relationship should last and how decisions will be made regarding
your investments

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 55

 Step 2: Gather data and information Step 4: Present the plan
Your financial advisor should ask for information Your financial planner will present you with a
about your financial situation, for instance: financial plan, but it is important that they make
sure that you understand what is recommended.
• your goals and needs They must explain why they recommend certain
• the risk you are willing to take to gain a higher options so that you can make an informed decision.
reward If you are not happy, ask them to revise the plan
• collect all the necessary documents and until you are.
information before giving you any advice
Step 5: Implement
Step 3: Analyse the data
It is important that you understand how the plan will be
Your financial advisor will look at your current implemented. Is it a plan you can manage yourself,
situation and suggest what you need to do to meet or will you need ongoing advice and support from
your goals. This could include looking at: the financial advisor?

• what you own Step 6: Review

• how much money you owe
• how you spend your money If you are using a financial advisor to manage your
• the insurance and investments you investment, it is important that you meet at least
already have once a year. As your needs and situation change,
• ways to help you save, like tax benefits and you will need to rethink your financial planning.
insurance or investment fees

Unless there is a life-changing event that requires you to immediately review your financial plan, it is important that
you meet your financial advisor at least once a year to review your portfolio.

56 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

7.4 How to choose an authorised financial advisor

Choosing the right authorised financial advisor is vital as the aim is to build up a long-term relationship with
someone you can trust. As with any relationship, you should expect your financial advisor to be honest, competent,
act with integrity, and be committed to acting in your best interests.

Although many of us follow the recommendations of family members, friends and colleagues when choosing a
financial advisor, it is best to make sure that your financial advisor is accredited and authorised by the Financial
Sector Conduct Authority (FSCA). Ask the following questions:

• Are they qualified and experience?

• Is the company they work for well-known and reputable?
• Are they easy to talk to and get hold of if you need to discuss something?
• Are they interested in your needs and goals, or just in making a quick sale?
• Do they explain complex financial terms and products in plain and simple English?

7.5 Checking a financial advisor’s background

One of the key responsibilities of the FSCA is to protect financial customers and ensure that they are treated
fairly. The FSCA, together with the Financial Advisory and Intermediary Services Act (FAIS), therefore, requires
that every FSP be registered with the FSCA before they may legally conduct business. The FSCA is an important
resource if you need to check whether the financial advisor you are considering is authorised to offer financial ad-
vice and/or sell you a particular financial product.

What can you expect from a good financial advisor? They should be able to:

• perform a needs analysis to ascertain your financial needs and risk profile
• put together a portfolio that is aligned with your needs, income and life stage
• be a good sounding board and dissuade you from making moves based on fear or greed
• work with you over time and understand your changing circumstances and requirements
• review your portfolio at least once a year and advise you of any decisions that need to be taken
• identify gaps or shortcomings in your portfolio, recommend the necessary changes

Did you know?

The FSCA has a list of authorised FSPs available at
https://www.fsca.co.za/Regulated%20Entities/Pages/FAIS-Verifications.
aspx

IMPORTANT: Many financial advisors are members of the industry’s professional association, the Financial
Intermediaries Association of South Africa (FIA) and the Financial Planning Institute of Southern Africa (FPI) an
independent representative body of professional financial planners in South Africa. It is helpful if your financial
advisor has a professional qualification from an approved institution, is a member of a professional body such
as the FPI, a professional body recognised by SAQA and the only institution in South Africa to offer the CFP®
certification. FPI has also been approved by SARS as a recognised controlling body. Financial advisors’
membership of these organisations helps protect you as a financial customer.

You can read more about how you are protected as a financial customer, including Treat Customers
Fairly (TCF), the FAIS Act and the Consumer Protection Act (CPA), in chapter 7.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 57

7.6 Questions to ask your financial advisor in your first meeting

Are you qualified and authorised?

Check if they are authorised with the FSCA and check what they are allowed to give advice
on – not everyone can give advice on every financial product.

Do you have references?

A referral from a friend or family member is often a good way to choose a good financial
advisor but ask for references from the financial advisor that you speak to.

What is the financial advice process that we will go through?

Most financial planning advice follows an internationally recognised six-step process to
identify your current financial knowledge and needs. The gap between your current situation
and your goals is what will create your financial plan.

How often will I meet with you?

Your personal circumstances change. You should meet with your financial advisor at least
once a year to review your plan.

Do you have someone who can step into your shoes?

If something happens to your financial advisor, is there someone else who can manage the
relationship?

Which companies do you deal with?

Your financial advisor should be connected to reputable financial service providers. Do they
receive training to keep them up to date with industry changes, and do they have access to
other financial planning experts (e.g., estate duty, taxation and trusts)?

Why is this financial product right for me?

The financial product must meet your needs and suit your budget, so make sure you
understand the product benefits, terms, and any restrictions on claims or withdrawals as well
as how much a financial product will cost you.

What do you charge, and what will you provide for this fee?
It is important to understand how your financial advisor earns an income. Find out how this
will affect and benefit you. Make sure that you are going to get value for money. Some
financial advisors build in their advice fee into a financial product that you may buy from them.

Please supply me with the following:

The code of conduct for intermediaries and the fit and proper requirements according to
the FAIS Act. The fit and proper requirements are important for financial customers as they
set the honesty and integrity, competency and operational ability requirements for all FSPs,
key individuals and representatives. It also sets out the solvency requirements applicable to
FSPs.

58 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 IMPORTANT: Most FSPs will provide this information and more in their introductory letter to clients.
Authorised financial advisors would also typically be able to provide detailed answers to questions
about their investment philosophy during the financial need’s analysis process and subsequent
structuring of an appropriate investment portfolio. You are entitled to clear information and to be kept
appropriately informed before, during and after point of sale.

7.7 Your responsibility as an investor

As investors, you may have heard success stories of friends,

family and associates who have made a lot of money by
investing. Their fancy lives intrigue and interest you – and
you may make some bad financial decisions based on your
desire to have the same. Remember high returns, involve
higher risk. There are professionals who have studied the
financial markets and have years of experience in providing
financial advice and selling investment products.

Working with a financial advisor is about more than ticking

compliance boxes. You, as well as your financial advisor,
must make sure that financial advice is given in clear, easy-
to-understand language and is fully understood. The same
goes for the fine print in the contracts that you will have to
sign before your money is invested in a certain product.

NOTE: Do not sign incomplete or blank contracts or mandates!

It is important that you, as the investor, ask the right questions, compare the financial
advice given and understand the impact of actions that will be implemented on your
behalf with your hard-earned money. Yes, you can shop around for the right financial
advisor just like to shop for any other service or product.

There are still instances where clients of financial advisors do not really understand
what they are told, or where a husband tells his wife to sign a contract without really
understanding the contents thereof. This is illegal. Any investor has the right to know
and should feel empowered to ask any question and get the answers they seek.

IMPORTANT: There are no dumb questions when you are about to sign away a portion of your income to
be invested on your behalf. You have the right to fully understand what is being offered to you. Take note of
the fact that you are by no means the only person who does not always understand or who feels silly asking
yet another question.

7.8 Fees and commission

Financial advisors typically charge a fee for their services or work on commission (the maximum commission they
can charge is prescribed by law). It is important to discuss this with them upfront so that you understand how they
charge and know what you are paying for. Some might charge a monthly retainer, a fixed amount, or a percentage
of your investment. Perhaps more important is the value they provide for what they charge and whether your in-
vestment portfolio yields decent returns. If your financial advisor cannot demonstrate the value they have added in
return for their fee, you may want to work with another individual or company.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 59

 Commission Fee
An amount paid by a product supplier An amount agreed and paid to your
to the advisor that assists you in advisor by yourself. You can authorise
purchasing the product. It is usually the provider of the investment product
built into the cost of the financial to deduct the fee from your investment
product. rather than you paying it monthly.

7.9 Other sources of personal finance advice

Besides reading as many brochures and informational articles as you can, there are other sources of financial
advice you may consider.

Online: There is a lot of information online that can help you with questions about your finances. Always verify the
source and information before you make a decision.

FSCA and other regulators: In South Africa, the FSCA and other regulators participate in work-based employee
assistance programmes. These encourage employees to save for rainy days and retirement and include topics like
planning, budgeting, saving, rights and responsibilities and recourse.

The South African Revenue Service (SARS)

provides a lot of information on taxes on its
website.

Your bank: Trained bank staff can also be a

good source of free factual information about
savings accounts and term deposits. This might
be all the information you need if your main
financial goal is saving for a home or building
an emergency savings fund. Remember to
shop around and compare products.

Your employee retirement fund:

Your employee retirement fund can provide factual information, including:

• investment options within your current fund

• saving for your retirement
• how to make extra contributions to your current fund
• consolidating multiple funds

Seminars and workshops: Financial advisors very often offer workshops and free seminars that give general
advice. If you want advice that takes your personal situation into account, you need personal financial advice, which
will mean talking to an authorised financial service provider, one-on-one.

8. Conclusion
This chapter, where we discussed setting goals, life experiences,
budgeting, emergency funds, investment timeframes and the role of
financial advisors, has covered a lot of ground in terms of financial
planning and the importance of financial advice. In chapter 4, we will
look at choosing the appropriate financial products for your unique
needs but before we come to that, we will investigate financial planning
for intermediate investors.

60 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

9. Self-assessment
Why is a personal financial plan important?

What is the point of setting goals, and what would your first three goals be?

What is the SMART goals format?

What are life experiences, and what do they have to do with your financial plan?

Complete this sentence: A budget is a list of …

What does budgeting teach you?

Name three tips that make budgeting easier

How much money should be in your emergency fund?

What is an investment time horizon?

Why do we need registered and authorised financial advisors?

List three questions you should ask your financial advisor.

What is your responsibility as an investor in terms of your financial advisor?

What is the six-step financial planning process?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 61

PART 2: FINANCIAL PLANNING FOR INTERMEDIATE
INVESTORS

1. Introduction
After having been exposed to basic investing tools, you may want to start investing directly in specific asset classes
like shares or property or decide to diversify your portfolio over different asset classes. You might be interested
in investments like commodities, which include gold, silver and crude oil. You might think of investing in specific
shares. You may be considering which collective investment scheme portfolios best suit you, by underlying asset
class or by investment strategy – see chapter 4, part 2, section 2.4 for more detail. Whatever the case, it takes
time and many hours of studying the markets and investment vehicles before you will be able to manage your
own portfolio. You must take personal responsibility for your financial affairs before you can expect to succeed in
investing.

Taking a step forward

• Remember that slow and steady wins the race.

• Overconfidence is dangerous in the financial world. Things are often unpredictable, and even most
experienced investors learn something new every day.
• Match your abilities with your expectations.

2. Invest first in your education, then in the share market

Educate yourself further in the art of investment. Start reading up about investment principles such as fundamental
and technical analysis and portfolio risk management. Read as many financial articles as possible.

62 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Did you know?
Investing in share markets is pretty much the same everywhere in the
world because the same investment principles apply. This means that you
can use your investment knowledge anywhere.

Learn all you can about following the financial markets on a day-to-day basis. Recent developments in
software programming have made this much easier for private investors. It is also much easier to stay
informed about what is happening in the share market than in the past. Financial news websites such as
Moneyweb, Fin24, Business Day, Financial Mail, Sharenet and others publish market information and share market
movements daily. The following three points will put you on the right track.

• Keep up to date with news about the local economy as well as the global economy. Set aside a certain amount
of time each day to stay on top of things. Time is money – the more you invest in understanding your field, the
more likely it is that you will make better informed financial choices.

• Read newspapers, business publications, financial websites and relevant books.

• Apart from having a good general idea of the financial landscape, follow a number of shares and get to understand
their movements. This is a good academic exercise to help you understand how the market works and how
individual shares perform within it.

Tips to make you a better investor

• Do not be controlled by fear or greed, and do not get too attached to shares that appear to be ‘winners’.
• Avoid making emotional decisions and becoming overconfident when you make money. Similarly, if you
lose money, chalk it up to experience and keep learning.
• Avoid ‘hot tips’ and only buy after doing thorough research over a period of time.
• Analyse why you choose particular shares and not others and write down your rationale.
• Make sure you are basing your decisions on sound fundamentals and not ‘hunches’.
• Never, ever borrow money to invest.

3. Conclusion
To move beyond basic investing, you need to educate yourself thoroughly. Learn everything there is to know so you
can enjoy a successful investment journey in the years to come.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 63

4. Self-assessment
Why is further financial and investment education necessary?

Name three tips that will make you a better investor.

64 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 3: FINANCIAL PLANNING FOR ADVANCED
INVESTORS

If you are an advanced investor, you’ve mastered the basics, taken a step forward to intermediate investing, and
are now ready to gain a deeper understanding of the more advanced aspects of investing. You devote at least a few
hours a week to researching investments and gaining a basic understanding of financial statements. You probably
have a circle of friends that you can discuss investments with, and you understand the finer points of financial
statements.

1. Company financial results

As per the listing requirements of the Johannesburg Stock Exchange (JSE), a listed company has to publish its
financial results twice a year: interim results at mid-year and final results at financial year-end. The listed company
has to distribute results and its annual financial statements to all holders of securities within three months after the
end of each financial year and at least fifteen business days before the date of the annual general meeting.

The financial results will include the listed company’s income statement, cash flow statement and balance sheet.
It will also include profit (or loss) statements, dividend announcements and commentary on how the company is
doing as well as how it views the future.

Company financial statements provide in-depth information about a company’s revenue, expenses, profitability,
debt load, and ability to meet its short-term and long-term financial obligations.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 65

 Financial statements

Books or statements drawn up by an accountant

or auditor to indicate a business‘ financial
situation.

Balance sheets

A financial statement showing a business’

assets and liabilities.

Exchange or Stock Exchanges

An exchange is the physical market that connects

people who want to buy shares to companies
selling shares. Exchanges used to have ‘trading
floors’ but most orders are executed electronically
these days. The best-known and biggest
exchange in South Africa is the Johannesburg
Financing
Stock Exchange (JSE). There are also other
exchanges such as A2X and ZAR X. Refer to the
Lending or otherwise providing money to help
USEFUL CONTACTS section of this guide for the
consumers or businesses meet their goals.
contact details of these listed exchanges.

Did you know?

The JSE offers free investment training at https://www.jse.co.za/services/jse-train-
ing-courses. It also has annual investment challenges for high school learners and
tertiary students at https://schools.jse.co.za/ and https://university.jse.co.za/. There
is also a platform for the general public, namely https://virtualtradinggame.jse.
co.za, that simulates a real trading environment and gives members of the public a
risk-free opportunity to trade shares.

Financial statements are, in effect, written records of the company’s activities over a certain period of time.

Financial statements must be audited to make sure they reflect an accurate picture of the company in terms of its
activities and also for tax, financing, or investing purposes.

Financial statements include a:

cash-flow statement
balance sheet income statement measures how well a
gives an overview focuses on a company’s company generates
of assets, liabilities, revenues and expenses, cash to pay its debt
and stockholders’ as well as net income obligations and fund its
equity or loss operating expenses and
investments

The results must be published using the International Financial Reporting Standards (IFRS). This ensures
consistency across results and companies.

66 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Equity
The value of a company’s shares. Equity usually
refers to the stake that you have in a business through
shareholding, as opposed to other securities that simply
earn an income from the business’ balance sheet

R
(profits).

Equities
Company shares that can be bought and sold.

Stocks
Stocks refer to the holding of corporate equities, or
corporate equity securities traded on a stock exchange
in general, whereas shares may refer only to shares,
whether listed or not, for a particular company.

2. Why company results are important to you

You cannot do much in the stock market without understanding earnings. Earnings are crucial for an investor who
wants to assess a company’s profitability.

According to Investopedia.com, a company’s earnings are, quite simply, its profits. While the details of real
accounting are much more complicated, earnings always refer to how much money a company makes minus costs.
The terms profit, net income, bottom line, and earnings all refer to the same thing.

Earnings are often expressed in terms of earnings per share (EPS), which is the most important indicator of a
company’s financial health. EPS is a company’s net income (or earnings) divided by the number of common shares
held by all its shareholders. It shows how much a company earns for each share. A higher EPS indicates the com-
pany’s stock has a higher value when compared to others in its industry. This is how you can compare companies’
financial health.

Investors should take earnings seriously because they ultimately drive stock prices. Strong earnings generally
result in the stock price moving up, weak earnings or losses drives the stock down. While there are no guarantees,
earnings and EPS are an excellent indicator of a company’s performance and whether an investor should consider
buying a company’s shares or not.

From the above, you can see why it is important

for an advanced investor to know or to learn
how to read and interpret company results.
Simply Googling “How to read company
results” will take you to relevant information
that you can learn from. Udemy.com and
coursera.org offer basic short courses you can
buy. More about this in chapter 4, part 3.

3. Conclusion
• As an investor, you should be able to read, understand and interpret a company’s financial results.
• The investor with a good knowledge of a company and who can read, understand and interpret financ statements
will have a lead over others who cannot.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 67

4. Self-assessment
Why must a company publish its financial results?

Explain your role as an investor in terms of a company’s financial results?

____________________________________________________________________________________________________

68 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

CHAPTER 4:
CHOOSING APPROPRIATE
FINANCIAL PRODUCTS

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 69

PART 1: PUTTING TOGETHER A PORTFOLIO FOR
BEGINNER INVESTORS

1. Introduction
How do you know which financial products are right for you? Earlier on, we discussed getting to know yourself.
Individual preferences are important; for instance, some people believe property is a great investment, while others
think it is too risky.

Your risk profile includes:

• risk appetite – the amount of risk you are prepared to live with to reach your financial goals. In
investments, risk is often related to how much the value of your investment goes up or down and how frequently
it happens. The more the value changes, the higher the risk that you may make a loss on a day that you need
your funds; the more constant the value, the lower the risk. Usually, products with a higher risk will grow faster,
but there is no guarantee.
• risk capacity – the ability to take risks without jeopardising financial goals.
• risk tolerance – the emotional or psychological willingness to take risk.

Markets and shares fluctuate, and decisions that make sense today may not make sense in the near or distant
future. Sometimes you need to act on this, but sometimes you need to ride out market movements regardless. To
make the right choices, it helps to understand the different asset classes and what investing in them entails. There
are pros and cons to different investment strategies and educating yourself is critical.

Everyone has a different investing personality – some people simply cannot tolerate risk, while others thrive on
taking chances for greater rewards. Working with a financial advisor can help you to better understand your risk
appetite and make informed decisions when it comes to growing your money.

70 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Remember: The more you stand to make – the more risk you potentially will be taking. The concept of risk
versus reward affects almost all investment decisions you will make.

2. Different folks, different strokes – contradictions you can expect to

run into
There is no one way to go about investing and no indisputable laws to follow. There are so many different investing
styles and strategies that two opposite approaches can both result in success.

Investopedia.com uses the following example of how contradictions play out in the markets:

Sally believes that the key to investing is to buy small companies that are
poised to grow at extremely high rates. Sally is, therefore, always watching
for the newest, most cutting-edge technology and typically invests in
technology and biotech firms, which sometimes aren’t even making a profit.
Sally does not mind because these companies have huge potential in the
longer term.

Johannes is not ready to go spending his hard-earned money on what he

sees as an unproven concept. He likes to see firms that have a solid track
record, and he believes that the key to investing is to buy good companies
that are selling at “cheap” prices. The ideal investment for John is a mature
company that pays out a large dividend, which he feels has high-quality
management that will continue to deliver excellent returns to shareholders
year after year.

Shareholder
A person who owns shares in a company.

Sally and Johannes clearly have different

preferences and approaches, but there is
no reason why both cannot be successful.
Each strategy has its merits.

In investing terms, Sally is a growth

investor, and Johannes is a value investor.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 71

 Digital apps

How can digital apps (budgeting/saving/investing) help you when you start to invest?
Time is such a scarce commodity. These apps will help you save time. Not only will your budget be at your
fingertips whenever you need to check your financial status, but you also have to spend time capturing all
your expenses. You can use these aids to identify your spending patterns and habits, which can help you
make the required changes to enable you to become an investor.

- Hester van der Merwe, Financial Planning Institute’s 2020 Financial Planner of the Year

3. Putting together a diversified portfolio

Do not put all your eggs in one basket. You could lose everything if you invest in one share and that company goes
bankrupt. You can diversify by buying shares for a selection for companies. An easy way to do this is to invest in a
pooled investment product like a collective investment scheme or exchange-traded funds (ETF). This is discussed
in more detail in part 2 of this chapter.

4. Conclusion
We have seen that there are many different investing styles and strategies and that two opposite approaches can
both result in success. What is important is that you put together a diversified portfolio in accordance with your risk
appetite and that you protect your investment against loss.

72 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

5. Self-assessment
Define a risk profile in terms of 1. risk appetite, 2. risk capacity and 3. risk tolerance.

Explain the concept of risk versus reward in investing.

What is a growth investor?

What is a value investor?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 73

PART 2: TYPES OF INVESTMENT –VARIABLE AND
FIXED INCOME
1. Fixed-interest investments
A fixed-interest investment offers an unchanging interest rate that is paid out at frequent intervals, like once a year,
every six months, and so on. The bond or certificate of deposit you invest in are not necessarily linked to the prime
interest rate, so the rate you are quoted is what you will be paid, regardless of what happens to the South African
Reserve Bank’s (SARB) lending or ‘repo’ rate. However, the resale value of a long-term government bond can
vary because the interest rate that it pays is fixed whilst actual market rates will fluctuate. Thus, generally, if the
prevailing market interest rates rise above the interest rate that the bond pays, the value of the bond in the market
will reduce.

Bonds are sold by government institutions or listed companies (government bonds and corporate bonds) in order
to raise money to improve the infrastructure of the country (by building roads, hospitals, and so on).

2. Variable-interest investments
These are investments on which the interest earned varies or differs from time to time. The interest rate can go up
or down but generally increases over time.

74 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

2.1 Stocks and shares

Shares give you part ownership of a company. Shares are also referred to as equities and stocks, which is why we
talk about stock markets, stock exchanges and stockbrokers (now called authorised users of exchange platforms).

Companies usually offer shares through a stock exchange to raise initial funds for operations or as a way to fund
growth objectives or specific projects. The level of ownership depends on the number of shares you own.

Case study

Karabo wants to start investing and is interested in a company

that is about to issue 1 000 shares.
Karabo decides to buy 100 shares.

1 000 ÷ 100 = 10

Karabo now owns 100 shares of the total issued shares of

1 000 shares of the company or 10%
(100/1 000 * 100) ‘equity’ in the company.

Or, in other words, his 100 shares mean he owns 10% of the
equity or stock in the company.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 75

• Why do companies issue shares to the public?

Most companies will need money to fund the start-up of its operations or more money than they generate from their
business activities to fund a new project or to develop a new product line. Issuing shares and selling them to the
public is an affordable way for private-sector enterprises to raise capital for such activities. As an investor, you can
buy shares at a certain price today in the hope of selling them in the future for more than you paid for them.

As a shareholder (someone who owns shares), you are entitled to a share of any declared dividends (profits). If
the company does not perform well, its share value decreases, and your shares may be worth less than when you
bought them (until the company recovers). If a company’s performance does not improve, or the company ceases
operations, you will lose some or all of your investment.

While shares are most often associated with a stock exchange, there are small unlisted businesses that also want
to expand and grow their business. They often find investors through private marketing or even among family and
friends or simply a group of private individuals willing to buy shares in the business.

Did you know?

The FSCA published a booklet to explain everything you need to know about shares.
You can find it online at https://www.fscamymoney.co.za/Publications/Shares%20
2021.pdf In Part 3 of this chapter, you will also find more information on shares.

76 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

2.2. Investing in property (bricks and mortar)

Investing in real estate can be a safe and reliable investment in times of uncertainty and can deliver a good return
on investment.

• Buy-to-let: This is the bread and butter of property investment where you buy a property to rent out. Your
tenant will help you pay off the mortgage (bond) and other expenses like maintenance costs, after which
the after-tax rental money will go straight into your pocket. The potential rental yield can serve you well in
retirement or help pay for your children’s education.

• Buy to renovate and sell: If you are creative and can do the renovations yourself, it may prove a shrewd
investment. Kitchen renovations are the most effective in boosting the value of a property, followed by
bathrooms.

• ROI: Your return on investment is decided by how much profit you make when you sell the property. A good
profit means a positive ROI while selling at a loss will mean a negative ROI. (Further on in this chapter you will
learn how to calculate ROI).

Return on investment (ROI)

Return on investment (ROI) is the ratio of a profit or loss made

in a financial year expressed in terms of an investment made.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 77

Risks

• Buying the wrong property: You must stay abreast of trends in the property market to make the right decisions.
Choosing the correct location is very important to retain or increase value.
• Greed: Property investment is a long game, slow and steady. Do not invest in property if you want to get rich
quick.
• Natural disasters: Make sure your properties are insured against damage.
• Unreliable tenants: Tenants that do not pay rent or damage your property can ruin your investment journey.
• Have all tenants been properly screened and are you keeping the relationship professional? You are investing,
not making friends.
• Real estate crash: Yes, prices can drop. However, real estate is a long-term game, and when prices drop, you
can still rent the property out and sell when the market recovers.
• Political instability: This may lower the selling price of your house, but on the other hand, it may open
opportunities for buying another property at a lower price. Also look at possible land claims on a property before
buying a specific property.

2.3 Collective investment schemes

Collective investment schemes (CISs), also known as unit trusts in South Africa, are popular investment vehicles as
they are easy to understand and are well regulated. In fact, they are the biggest retail investment vehicle in South
Africa. The majority of ETFs listed on the JSE are also CISs.

• Whatever your investment goal, they provide you with an effortless way to grow your wealth and offer all the
advantages of a savings account with the benefits of long-term exposure to the financial markets (the longer
the investment term, the better your protection against market movements and volatility).

• Your portfolio will be managed by a registered CIS Manager who will in turn appoint a professional investment
manager, who will pool investors’ funds in the portfolio selected by the investor. Different portfolios are registered
with the FSCA according to its own investment policy, which is determined by different asset classes and
industry sectors, including local and global equities, bonds, property, money-market instruments and more.
The aim is to create a diverse, investment portfolio that will allow investors with different risk appetites to
participate in the stock market.

• Typically, trustees or custodians like the big banks will hold the assets of your portfolio on your behalf and
in the name of the portfolio, and you get to share the risks and benefits of the investment according to your
participatory interest (PI) in the CIS – this means the percentage of your share in the pooled funds. The value
of your investment can be calculated by multiplying the price of a PI by the number of participatory interests
you own.

78 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Collective investment schemes (CISs)
Investments in which money from various investors is pooled and
invested in various assets.

Sector
Shares in the same industry belong in the same sector. For example,
the technology sector includes companies like Apple and Microsoft.
Some authorised users of exchanges prefer to trade in one sector
because they know the industry well and can better predict the per-
formance of the shares.

Investment manager
An individual or company that has been registered in terms of the
Financial Advisory and Intermediary Services Act (FAIS Act), to
manage the assets in a portfolio on behalf of investors (individual or
institutional investors).

Collective investment schemes can invest in:

• Securities: A security is any financial instrument with monetary value that can be bought, exchanged or sold,
and includes shares, bonds, debentures, notes, interest-bearing instruments and participatory interest in other
CISs or ETFs.

• Property: Investors can pool their funds to invest directly in property in any jurisdiction anywhere in the world,
and includes a mix of property types, like residential or retail property, factories or warehouses.

• Participation mortgage bonds: A mortgage bond is registered on a property, and investors’ funds are lent to
developers who will improve the value of the property through developing it. In the event that the developers
cannot repay the loan, the scheme will take ownership of the developed property and sell it to recoup the funds.
The portfolio invests in the mortgage bonds.

• Hedge funds: In April 2015, regulation of hedge funds was introduced as collective investment schemes
governed by the Collective Investment Schemes Control Act 45 of 2002. Before this, hedge funds sometimes
charged exorbitant fees and frequently failed to deliver as promised.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 79

What makes hedge funds different from other investments is that they can invest in a strategic combination of
derivative instruments along with other types and combinations of assets. Derivatives instruments are contracts
of which value is linked to the value of underlying assets like stocks, bonds, commodities, currencies, precious
metals and so on. Derivatives could be highly volatile, so investment managers try to hedge against adverse price
moments. In January 2020, the Association for Savings and Investment South Africa (ASISA) introduced a Hedge
Fund Classification Standard, which classifies hedge funds in different categories to appeal to the different risk
appetites of investors.

One finds two different types of hedge funds in South Africa; the Qualified Investor Hedge Fund (CIHF) and the
Retail Investor Hedge Fund (RIHF). The QHIF’s are only available to investors with a considerable amount of
money to invest and who have specialised investment knowledge to evaluate the specialised risk of these funds.

The RIHF’s however are available for anyone to invest in. RIHF’s in South Africa mostly focus on hedging the fund
against possible losses. Therefore, it may be ideal for many retail investors who are hoping to make a profit above
normal interest rates but do not want to take the higher risks of losses of the normal CIS funds that in invest in
shares (equity). However, an investor must be careful to make sure that the portfolio they want to buy is one that
hedges against losses and not one that follows a riskier strategy to chase profits.

Diversified portfolio
A diversified portfolio contains a mix of distinct asset
types and investment vehicles in an attempt at
limiting exposure to any single asset class or risk.

Diversification
A risk management strategy that mixes a wide variety
of investments within a portfolio.

Balanced portfolio
May be ideal for a first-time investor who is looking
for a long-term investment with average risk. These
funds are one of the different types of CIS’s in
securities that invest in a flexible combination of
shares and interest-bearing instruments or bonds
and may include some foreign exposure and property
exposure. This strategy allows you the growth in
some investments even when others don’t perform,
thereby mitigating downturns. Balanced portfolios
mainly follow the limits of permitted investment
determined by the Pension Funds Act and are
thus ideally positioned for long term retirement
investment. However, different funds have different
levels of exposure to asset classes, and the investor
needs to be aware of the limits permitted for a fund in
the public documents provided.

80 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

2.4. Money market funds

Money market funds are short-term, (relatively) low-risk collective investment

schemes/unit trusts that keep your money liquid, that is, easily accessible as cash,
and has a reduced risk of losing the original capital amount. Investors use these
funds to protect their money but still earn some interest on it at better rates than
normal savings accounts – however, you cannot grow wealth over the long term in
such a fund as, compared to equities, you are invested in the money market and
not the capital market. (Note that money market funds should not be confused with
money market accounts, which are typically used for saving.)

Money market funds are collective investment schemes/unit trusts (other jurisdictions Money market fund
use the term ‘mutual funds’), which means that your money is pooled with that of A type of investment
other investors, and an investment professional will try to negotiate the best possible that provides monthly
interest rate. There is a minimum investment amount that you have to invest, and income through
you can top up your investment at any time. Remember to ask your investment interest.
professional about their fees or commission.

How will I benefit?

• There is no penalty or notice period to withdraw your money and no clearly

defined investment term, which gives you flexibility.
• Returns are generally higher than bank deposits, which makes these funds
attractive, but note that the rate of return may move up and down.

What is the investment amount?

Your service provider will be able to tell you what the minimum investment amount
is. You need to put down an initial lump sum, but you can arrange for a monthly debit
order if you would like to deposit more money into the fund each month.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 81

2.5 Exchange-Traded Funds (ETFs)

An ETF is essentially a basket of shares. You buy the basket and get exposure to anywhere from 10 to perhaps 600
different shares in that basket, depending on the index that the ETF tracks, which reduces the impact of downward
share price movements of companies in the ETF basket and reduces your risk of losses if a company in the basket
goes bankrupt.

An ETF and other collective investment schemes are essentially the same, but ETF’s are listed on an exchange
and other collective investment schemes are purchased directly from the CIS manager, online or through other
financial intermediaries.

Exchange-Traded Funds (ETFs)

A great starting place for many individual investors who are looking to build a share portfolio is the ETFs. ETFs
are short for Exchange-Traded Funds and they are products that are listed on the JSE and can be bought or
sold just like any share. ETFs allow you to track the performance of a basket of shares or indices such as the
FTSE/JSE Top 40 Index, or even single commodities.

- Adele Hattingh, JSE Business Development & Exchange Traded Products Manager – Capital Markets

82 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Liquidity of shares
When shares or investment instruments are
referred to as liquid, it simply means that there
are buyers ready and willing to buy shares as
sellers make them available; in other words,
it is easy to convert your shares to cash. The
opposite is also true – ‘illiquid’ means you are
unable to sell shares at the price you want
because there are seldom any willing buyers.

Dividends
A sum of money a company pays to its
shareholders out of its net profits and/or
reserves.

According to Adele Hattingh, JSE Business Development & Exchange Traded Products Manager – Capital Markets,
the greatest benefit of ETFs to first-time investors is that they provide a diverse exposure to shares without having
to buy all the underlying stocks directly. Having just one ETF share exposes you to the underlying index which may
be made up of as many as 40 shares.

(An ETF share is not a company equity share, but actually a participatory interest. Worldwide it is accepted that
ETF’s participatory interests are also named shares because the fund is listed). They are also liquid instruments
and are relatively low in cost.

ETFs open the door for anyone to invest in the financial market and do not require extensive research into each
and every underlying company. By buying ETFs you can achieve a diversified portfolio even as a beginner investor.

If a share within an ETF declares a dividend you will be entitled to it just as a shareholder would be. Some ETFs
automatically re-invest these dividends back into the fund which means the effects of compounding are put to work
for you, whereas other ETFs pay out the dividends to investors.

The following are some examples of Equity ETFs that are available for trade by investors:

TOP 40 EQUITY ETFs

NAME DESCRIPTION OF WHAT THE ETF TRACKS

NewFunds Shari’ah Top 40 (NFSH40) The Shari’ah compliant companies in the FTSE/JSE
Top 40 Index
Ashburton Top 40 (ASHT40 The FTSE/JSE Top 40 Index
Satrix 40 (STX40) The FTSE/JSE Top 40 Index
Top1nvest 40 (ETFT40) The FTSE/JSE Top 40 Index

OTHER EQUITY ETFs

NAME DESCRIPTION OF WHAT THE ETF TRACKS

Satrix FINI (STXFIN) The FTSE/JSE Financial 15 Index
Satrix INDI (STXIND) The FTSE/JSE Industrial 25 Index
Satrix RESI (STXRES) The FTSE/JSE Resi 10 Index

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 83

INTERNATIONAL EQUITY ETFs

NAME DESCRIPTION OF WHAT THE ETF TRACKS

Sygnia Itrix MSCI USA The MSCI USA Index, a market cap-weighted index which represents about
(SYGUS) 600 of the largest companies in the USA
Sygnia Itrix MSCI World The MSCI World Index, a market cap-weighted index which represents
(SYGWD) about 1600 of the largest companies in the developed world

An investor is faced with a decision whether he or she should invest in an unlisted CIS or an ETF. This choice will
be informed by the investor’s personal preferences as the one is not necessarily better than the other, as well as
the main differences between unlisted CISs and ETFs.

These are:

• ETFs are traded on a secondary market (the stock exchange) and CISs are purchased directly from the CIS
manager, online or through other financial intermediaries and redeemed the same way;

• Market makers or agents are appointed in the case of ETFs to ensure provision of liquidity, whereas the liquidity
in the CIS fund will purely depend on the ability to sell off the assets in the portfolio;

• In the case of ETFs, the stock exchange’s SENS announcements are used for disclosures in addition to the reg-
ulated disclosures required for a CIS;

• An ETF is generally more transparent than CIS in the shorter term, as intra-day pricing is possible, either through
full disclosure of underlying holdings or provision of iNAV;

• ETFs are currently passively managed by simply referencing to an index; there are also some passively managed
CIS Funds, but they are far in the minority and usually relate to funds that invest in resources shares – otherwise
CIS’s are mainly actively managed by professional investment managers.

84 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Indicative net asset value (iNav)

This is a measure of the intraday net asset value (NAV) of an investment. iNav is reported approximately every 15
seconds and gives investors a measure of the value of the investment throughout the day.

Each investment option has its own advantages and disadvantages and it is important to take into consideration
the costs and the risks associated with each.

Let us look at the differences between passive and active funds below:
Passive funds

• It references or tracks the performance of an index that is specifically chosen and disclosed to the investor.
• The performance is limited to the up and down movement of the chosen index and the investor cannot
expect outperformance.
• Because the fund only needs to choose assets to track an index, the fees are often less.
• The investment policy is easier to understand if the index is known and understood.

Active funds

• It buys and sells different financial instruments or assets on an going basis in order to out-perform specifically
chosen and publicly disclosed benchmark. This benchmark can also be an index or a composition of indices.
• It can deliver better performance than the index over time if the fund management strategy is successful (but
as the stock market is a zero-sum game, it may also under-perform the benchmark over time).
• Higher fees may apply because much more work needs to go into the selection of the assets, especially
research and analyses of the shares.
• The investment policy may sometimes be quite complex to understand, and the investor does not know over
the short term how the assets are changed around in the portfolio.

3. Conclusion
In Part 2 of this chapter, we had a closer look at how to choose appropriate financial products for your unique
circumstances and needs. Some of these products will be discussed in more detail in Parts 3 and 4 of this chapter.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 85

4. Self-assessment
What will determine how you put together your portfolio?

Why can two totally different investment strategies achieve the same success?

What is the difference between a growth investor and a value investor? Which one are you, and why?

Explain the difference between variable and fixed-income investments

How does a money market fund work?

Why is a CIS a good choice for beginner investors?

86 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 3: CHOOSING APPROPRIATE FINANCIAL
PRODUCTS FOR INTERMEDIATE INVESTORS

1. Your unique portfolio

A portfolio is a mix and match of all the assets you own, combined to help you reach your investment goals.

Think of your portfolio as a pie chart where each portion represents a certain part of the total investment. The mix
is chosen according to what you want to achieve, the strategy you follow, the risk you are willing to take, and the
expected return.

Here four examples of investment strategies to consider:

• Aggressive investment strategies shoot for the highest possible return and are best suited for investors who
have a high-risk tolerance and a longer time horizon. Aggressive portfolios generally have a higher investment
in equities especially the smaller capitalised shares.

• Conservative investment strategies make safety a high priority and are best suited to investors who are
cautious and risk-averse and who have a shorter time horizon. A conservative portfolio generally consists of
mainly cash and cash equivalents or high-quality fixed-income instruments but could include some of the low
volatility top 40 shares, depending on risk appetite of the investor.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 87

• Active investing strategy: A method in which individuals take more of an active role in buying and selling
their shares. By taking this hands-on approach, investors make frequent buy-sell decisions, making the most of
information flow and price fluctuations. Active investors aim to outperform the broader market. Active investing
carries higher risk and potential to generate higher returns. Hands-on investors can still hire a financial advisor
to invest actively on their behalf or purchase mutual funds that are actively managed.

• Passive investing strategy: The aim of passive investing is to get market returns through researching, buying
and holding the investments. It is an approach by which investors try to replicate the performance of a specific
market benchmark, typically through the purchase of index funds. Passive investors usually hold shares for
years or decades. In taking a hands-off approach to managing their portfolios, passive investors miss profits
from rising stocks that aren’t included in the index they track – and opportunities to buy at a bargain after-market
correction, but they do take less risk than the active trading investor that is trying to time the financial markets.

2. Asset allocation
The process of investing your money across different asset
classes in order to meet your investment objectives is
known as asset allocation. It simply means that you decide
how you are going to:
• spread your money across different asset classes, such
as equities, bonds, property or the money market.
• select a mix of asset classes that reflects your investment
objectives, time frame and attitude towards risk.

2.1 Asset allocation and investor types

Every investor has different goals. These examples from Vanguard, one of the world’s largest investment
management companies, highlight how different types of investors may choose to structure their investment mix.

Example 1: The wary investor

An investor in her 30s is saving for retirement, and you might expect her to meet
her goal by investing primarily in equity-based funds. But she’s wary of the stock
market, an inexperienced investor, and sees that equities have suffered recent
declines. She finds that she’s most comfortable with a portfolio that includes 20%
equities and 80% bonds.

Example 2: The dual-income couple

A dual-income married couple in their 40s wants to build up additional savings

for retirement in about 20 years. A portfolio that consists of 70% equities and
30% bonds might be appropriate. However, the husband’s job (which provides
nearly half of their income) has become unstable, and they’re anxious about
their economic future. They may prefer to settle on a more conservative asset
allocation of 50% equities, 40% bonds, and 10% cash.

88 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Example 3: The recently retired couple

A newly retired couple in their 60s first considered a portfolio of 30% equities and
70% bonds. However, they believe their retirement benefits are ample for their
income needs, and they want to build a larger estate to benefit their grandchildren.
They decide on a more aggressive asset allocation consisting of 50% equities and
50% bonds. Here, the additional risk is expected to generate higher long-term
returns.

3. How to invest in CISs

It is wise to consult an authorised financial advisor before selecting which collective investment scheme would best
suit your risk appetite, as this may require a proper evaluation of your investment needs and some professional
investment knowledge. Remember, such an investment has to take your needs and risk appetite into account,
which can be influenced by your age, your marital status, how many children you have, the state of your health,
your investment goals, how much you earn, what you own or owe, and your own level of investment knowledge.

Note: The Collective Investment Schemes Control Act, Act No. 45 of 2002 regulates the administration,
management, and sale of collective investments.

3.1 Why should I invest in a CIS? 3.2 When will I receive an income?

• It allows me exposure to shares and markets Income is distributed to investors every month,
I might not be able to access otherwise due quarterly, six-monthly or annually depending on the
to the high prices for good shares and money specific type of funds, but investors are taxed on it as
market instruments. it is treated as interest earned or dividends, depending
• Depending on my investment strategy, I on the underlying asset types.
can be in vested anywhere in the world and
benefit from the differential in exchange rates According to SARS investors are taxed on the
and foreign markets’ performances. Note that profits they make (capital gains) when they sell their
some portfolios do not invest offshore at all. participatory interest at a marginal rate which may vary
• A professional investment company manages between 18% (but effectively 0% of your tax rebates
my fund and I can choose from any of the are taken into account) and 45%, depending on the
many diverse CIS funds to tailor my portfolio level of your taxable income (2021).
according to my needs and investment time
horizons. Individual taxpayers enjoy
• I can invest a lump sum, or make a monthly an annual exemption on
contribution, knowing that I have the flexibility to all South African interest
put in as much as I like and access the funds income they earn, set by
when I need them by cashing in a portion or all SARS every year.
of the CIS investment.
• I can check how my investment is performing For the interest income for
daily or in the longer term by examining people under 65, SARS
newspapers, market reviews, relevant websites allows an exemption of
/ apps, annual or semi-annual reports. R23 800 and R34 500 for
• Detailed information on each portfolio is people 65 years and older
updated quarterly and easily available to (2021), at a rate of 18%.
anyone.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 89

3.3 Before you commit to investing in a CIS, there are a few questions you need to ask:

Q: How much money do I need to invest?

A: You can invest a minimum amount of around R300 to R1 000 a month or more, and you can set up
a monthly debit order or put down a lump sum to start off your investment, depending on the fund’s
requirements.

Q: What are the fees and charges involved?

A: You may have to pay an initial fee when you join, although this is not always charged and can be
negotiated, and there are generally annual management and administrative fees that are automatically
deducted from your investment portfolio. Some portfolio managers charge a performance fee if a particular
benchmark is achieved. If you make use of an authorised financial advisor you can ask for an explanation
of the fees involved and whether there are any hidden costs, including the advisor’s own fees. If you are
savvy enough, you may want to invest directly without making use of a financial advisor and save on
advisor fees.

Q: How are dividends and income distributed?

A: CISs must distribute income at least once a year before the end of the tax year, although it can be
reinvested. If you switch between portfolios, you can sell the unit trusts from one portfolio and reinvest the
proceeds in another (there could be charges and tax implications, however).

Note 1: South Africa uses a “twin peaks” model of regulation of the financial services sector. Monitoring the financial
soundness and health of investment companies is the responsibility of the South African Reserve Bank as the
prudential authority (PA). The Financial Sector Conduct Authority (FSCA) regulates the market conduct of all
financial institutions, including the managers of collective investment schemes.

Note 2: The Financial Intelligence Centre (FIC) administers anti-money laundering requirements of the Financial
Intelligence Centre Act of 2001. The FSCA shares the responsibility by supervising the FIC Act requirements as
delegated to it by the FIC.

90 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

4. Bonds
Different types of bonds:

• Government bonds or gilts: Government-issued bonds are promises of repayment for money you have lent
to the government or large corporates; government bonds are usually used to invest in infrastructure projects
such as roads, power stations and hospitals. Government bonds tend to be of lower risk as most governments
are regarded as the least risky entity in a country, but they pay a lower interest rate.

• Semi-government stock or bonds: Parastatals like Telkom, Eskom and Transnet also issue bonds to raise
funds for capital projects. They are also deemed to have a lower risk of default and together with government
bonds are the cornerstone of a diversified portfolio. As with bonds, interest and capital are guaranteed by
government in most cases. However, all bonds issued or backed by government are sensitive to interest rate
changes.

• Municipal bonds: Local government entities issue these debt securities to consumers, so they have enough
income to fund public works and build or repair roads, bridges, schools, parks and so on. The issuer of the bond
guarantees to pay interest (coupons) at set periods and to repay the principal debt on a specified date. The
interest paid on the bond is tax deductible.

• Zero-coupon bonds: These bonds are debt securities that are sold at a discount on the understanding that the
investor will receive a profit when they mature and are paid out. They do not pay interest, and their future worth
is greater than their present value.

• Corporate bonds: Companies sometimes issue bonds to raise money for ongoing operations or to expand
their business. These tend to be longer-term debt instruments, and interest is typically paid out twice a year.
The face value of the bond is paid out upon maturity.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 91

5. Property funds or real estate investment trusts (REITs)
When you invest in a REIT, you are not purchasing a bricks-and-mortar property, nor are you responsible for
managing that property. You own shares in a part of the income produced by the property. Investors typically
invest in REITs via the stock exchange but there are some unlisted ones available.

5.1 What are the advantages of investing in REITs?

Fixed property is usually a good investment, but it can be expensive. REITs provide you with exposure to the
property market without having to part with a large amount of money. In fact, you can gain exposure to a number
of well-managed properties and enjoy a regular income via lease agreements on the properties. You can also exit
the investment easily, which is not the case if you are the outright owner of a house.

REITs can be risky as you are exposed to the property market and economic risk but can render higher profits than
you would get from putting your money in a savings account, for example, to compensate you for that risk.
• Prices are publicly listed and driven by supply and demand, which means a high degree of price transparency.
• You will need to pay a brokerage and administration fee, but the properties you are invested in are managed on
your behalf.

REITs do not attract capital gains tax (CGT) for the disposal of their properties, shares in another REIT, or shares
in a controlled property company. However, CGT must be paid when shares in the REIT are sold by the investor. If
the investor is a trader, the profit would be regarded as income and attract income tax. South African investors do
not pay dividend withholding taxes (DWT) when it is distributed by a REIT. Instead, as a South African investor you
pay normal income tax on all the dividends you receive taxed at your marginal tax rate (on a sliding scale up to a
maximum of 45%). Non-residents are subject to a 20% dividend withholdings tax.

92 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

5.2 How are REITs regulated?

REITs are subjected to:

• The JSE Limited Listings Requirements
• A foreign country’s REIT Legislation in the case of a foreign REIT
• Companies Act in the case of a company
• Collective Investment Schemes Control Act in the case of property funds.
• Own Articles of Association

6. Offshore investing
Offshore investing aims to capitalise on advantages offered outside of an investor’s home country.

Offshore investors are interested in investing and spreading their risk in different economies and geographic
regions. A broader selection of companies may want to go this route to earn returns under different conditions.

An offshore investment in your own name in the foreign country can also be a great financial plan for possible future
migration or overseas studies.

South Africans older than 18 are allowed to invest up to R10 million every year in offshore investments. To use this
allowance, investors need a tax clearance certificate from SARS. The SARS certificate is only valid for 12 months,
after which time you will have to apply for a new one.

If you wish to invest more than R10 million per year, you must be able to prove that you legally exported other funds,
including:
• income generated on funds previously retained abroad
• income earned abroad from a foreign employer after 1 July 1997
• inheritances retained abroad
• inheritances paid out abroad but remitted to South Africa
• foreign inheritances
• own foreign capital introduced to South Africa after 1 July 1997.
• funds on which amnesty was granted in terms of the Exchange Control Amnesty and Amendment
• of Taxation Laws Act, 2003 (Act No. 12 of 2003)
• any funds for which specific approval was granted by the SARB

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 93

 Tax implications: The tax implications are similar to those affecting local investments: CGT is payable on
the profit you make between the difference in what you paid for your investment and what you are selling it
for. In other words, if you buy a small flat for R400 000 and you sell it for R450 000, your profit or capital gain
is R50 000. You will only be taxed on the R50 000.

7. Crypto Assets
Crypto assets, commonly but mistakenly called cryptocurrencies as they are not recognised as legal tender, are
becoming hugely popular, but it is an enormously volatile instrument and risky to invest in.

Cypto assets are digital representations of value that are not issued by a central bank, and so are not currency,
not legal tender and not guaranteed by the South African Reserve Bank (SARB). Some well-known crypto assets
include Bitcoin (BTC) and Ethereum (ETH) as well as Litcoin, Namecoin and PPCoin.

They have been used for payments, investments and capital raising. In October 2022, the FSCA declared crypto
assets as a financial product under the FAIS Act. This is because of the wide-scale abuse and fraud that is being
observed in this market, particularly in the area of crypto-derivatives, with many people losing their life savings to
unscrupulous scammers.

Cryptocurrencies are traded, transferred and stored electronically through a decentralised technology called
blockchain. Blockchain records peer-to-peer transactions on a digita ledger. No third party, i.e., a bank, is involved
in the transaction.

94 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Cryptocurrency

A digital or virtual currency that is secured by

cryptography, which makes it nearly impossible to
counterfeit or double-spend. Many cryptocurrencies
are based on blockchain technology – a distributed
ledger enforced by a disparate network of computers.

Did you know?

Mirror Trading International (MTI) was named the biggest crypto scam of 2020, with R8,6
billion of investors’ bitcoin stolen.

Some defining characteristics and risks of cryptocurrencies:

• They have an organic nature. Members of the virtual community agree to accept crypto asset units as a
representation of value in the same way that physical currency is accepted.

• Digital currencies generally exposes end-users to risks, particularly the potential to incur sizeable financial
losses due to wild demand and supply (and therefore price) fluctuations.

• They could be vulnerable to operational risks. A cyber-attack could potentially wipe out the total value of a
digital currency.

• Crypto asset prices are highly volatile and not a suitable investment if needing steady and reliable returns.
Crypto assets can be difficult to sell, meaning that you may not have access to your savings as quickly as you
need.

• Bitcoin’s commitment to a limited production (of 21 million bitcoins) is fundamental to its objective of retaining
value. Although it must be noted that this commitment is not contractual, and there is no clear recourse indicated
should the token be devalued (or more bitcoins mined).

• Crypto assets are not immune to the threat of hacking. In Bitcoin’s short history, the company has been subject
to over 40 thefts, including a few that exceeded a billion dollars in value.

Bitcoin can be bought and sold in South Africa through a Bitcoin exchange that can be accessed through your
personal computer or smartphone using the relevant mobile app. Once you have signed up for an account and it is
verified, you need to obtain a Bitcoin wallet which you use for your Bitcoin transactions.

It is possible to transfer funds from any of the major financial institutions in South Africa to a Bitcoin
exchange, and you can start trading as soon as the funds are cleared. You have the choice of keeping your bitcoins
in the exchange or transferring them to your personal Bitcoin wallet.

Crypto-asset tax implications: SARS will apply general tax principles and tax the income or capital gains
that are received or accrued to the taxpayer. SARS has started auditing cryptocurrency investors and
expects investors to provide proof of transactions from the various crypto investment platforms.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 95

The general rule (2021) is:
• If you are making profits from trading crypto, this will be deemed as income and taxed at your marginal tax rate
(on a sliding scale up to a maximum of 45%).
• If you buy and hold crypto for an extended period and then sell at a profit, capital gains tax (CGT) will apply
(your capital gains are added to your annual pre-tax income. The CGT rate can range from 7.2% to 18% de-
pending on the tax bracket you are in).

Compliance requirements or exchange control regulations: As an individual, you may purchase crypto assets
from abroad using your single discretionary allowance of up to R1 million and/or your individual foreign investment
allowance of up to R10 million with a tax compliance status PIN (a personal identification number) per calendar
year. You will need to apply for a foreign tax clearance certificate from SARS, which will be valid for 12 months.

IMPORTANT: Marketing of crypto assets is often misleading and focuses on how much you can gain,
without explaining how much you can lose. Make sure providers explain the risks fully and completely, and
disclose fees, Ts&Cs and any conflicts of interest. Know all the facts before you invest.

96 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

8. Crowdfunding
African Crowdfunding Association (ACfA) defines crowdfunding as “the practice of funding a project or venture by
raising funds from a large number of people who contribute relatively small amounts, typically via a digital platform.
Securities-based crowdfunding is the practice of funding a small business by issuing securities to individual
investors.”

The following table shows how crowdfunding for investment works.

CROWDFUNDING FOR INVESTMENT

Reward-based or seed crowdfunding How it works

Individuals contribute small amounts of money
This type of crowdfunding is used to raise funds in anticipation of a reward in the future. As this is
to finance a small business. It is popular among not a loan, money does not have to be paid back
entrepreneurs. – however, non-cash rewards may be offered, like
an original signed artwork by an artist setting up a
studio. This helps small businesses and start-ups to
launch.

Equity crowdfunding Investors receive shares in the company in

exchange for their financial contribution, but
Also known as crowd-investing, investment because start-ups are risky ventures, it may take
crowdfunding, and crowd equity, equity crowdfunding years to get a return (if ever), and investors will
offers private company securities to investors. The probably not receive any dividends for many years.
aim is to help an unlisted company grow its business. They will most likely struggle to sell their shares
readily. The hope is that the company will grow
sufficiently to list on the stock exchange.

Debt crowdfunding How it works

Because these are loans, investors can expect
Crowdlending and peer-to-peer lending imply capital and interest repayments at a later stage.
getting loans from people rather than from banks. The borrowers should be clear about their business
It is useful for individuals or businesses that need objectives, what the terms of the loan are, and when
capital but prefer to pay back the funds rather than investors can expect to be repaid. They can be
offer equity. required to provide some security in the form of
business assets or a personal guarantee.

Real estate crowdfunding How it works

Investing in property typically has a high barrier Pooled funds are used to pay for a large property,
to entry. However, real estate crowdfunding can like an apartment building, or invest in REITs – in
give you exposure to the property market with little both cases, investors do not have to worry about
capital outlay. Real estate crowdfunding platforms the day-to-day management of properties or
often invest in REITs which, as we have seen, tenant headaches. As these investment vehicles
frequently offer dividends; however, they can also turn a profit, investors will receive proportional
give investors access to private market real estate pay-outs according to how much revenue the
investments. property generates.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 97

9. Shares
Shares, or equities, continue to be a popular asset class as they tend to outperform inflation in the long term and
deliver a higher return on investment (ROI). Therefore, most financial advisors would include a good spread of
equities in most of their clients’ portfolios.

9.1 Types of shares

The most common types of shares issued are ordinary and preference shares.

Ordinary shares Preferred or preference shares

A class of shares owned by people that gives them the These are a special series/class of company shares.
right to receive part of the company’s profits. They also Unlike ordinary shares, they have a fixed dividend.
have voting rights. Preference dividends are paid out to shareholders
before ordinary share dividends are paid. Holders
If you own ordinary shares, you can earn an income by of preferred shares do not have voting rights, unlike
selling your shares at a profit when the share price goes ordinary shareholders.
up, or a company meets its profit targets. Companies
can choose to pay out dividends (a share of their profits) If you own preference shares, you have the peace of
to shareholders if they perform well. mind of knowing that, if the company goes bankrupt, you
can recoup some (if not all) of your investment before
As a shareholder, you own a little piece of the company, other shareholders. That said, you have no voting rights
and you have voting rights at its annual general meeting at the company’s annual general meeting (AGM). An
(AGM). However, if a company goes out of business, AGM is a yearly meeting of shareholders of a company
you will be paid last, after the South African Revenue or organisation, convened for holding elections, voting
Service (SARS), employees, holders of preferred on issues and reporting on the year’s events.
shares and creditors.

98 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

9.2 How can I buy shares?
A full-service authorised user of an exchange platform (formerly known as a stockbroker) can help you buy and sell
shares listed on a stock exchange, or you can manage your own trades online if you are an experienced investor.
Beginner investors are urged to use the services of a professional to avoid falling prey to fraudsters and scams. A
professional has the knowledge and expertise to guide you as you build up your portfolio – make sure that such a
professional has passed the South African Institute of Stockbrokers’ (SAIS) exam. SAIS is the professional body
for stockbrokers and other financial markets professionals and you can get more information about a stockbroker’s
SAIS qualifications by phoning or emailing the institution.

You can open different accounts with a full-service authorised user of an exchange platform, for instance:

Discretionary investment account

Authorised user of an exchange platform
A discretionary trading agreement allows an authorised (formerly known as a stockbroker)
user to make trades, buying or selling securities in an A person or company that buys and sells equities
investor’s account without the investor’s approval but or shares for other people. The Financial Markets
always according to the investor’s mandate, objectives Act (FMA) defines a stockbroker as an ‘authorised
and risk tolerance. person’ allowed to perform one or more security
services in accordance with an exchange’s rules.
Non-discretionary investment account
Full-service authorised user of exchange
A non-discretionary investment account is one in which platforms
the investor decides on what trades to make after (formerly known as a full-service stockbroker)
receiving advice from an authorised user who has A company that manages the whole process of
reviewed your financial position and investment targets. buying shares. They offer a personalised service
that includes researching the best shares for
Do not leave everything to the authorised user, and do your investment strategy as well as buying and
not forget that it is your money that is being invested. Try selling shares on your behalf.
to learn more about the financial history of a particular
company (are they making a profit or a loss?), the Trading or trades
management of the company, and whether it is listed on The activity of buying and selling shares in
one of the exchanges. companies.

9.3 What is a share price?

A share price is the amount of money that it costs you, to buy a single share in a company (excluding the
transaction fee). The price can be determined by demand or by the past financial performance of the company in
question. If a company is doing well, the share price increases; if it is performing below expectations, the share
price will fall. Supply and demand influence market prices but do not determine the intrinsic value of shares.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 99

9.4 Primary and secondary markets

Primary markets: New shares or other securities are issued in primary markets – for example, when a
company sells its shares to the public for the first time, in an initial public offering (IPO).

Secondary markets: Share or other securities that were previously issued are bought and sold (traded) in
secondary markets, such as on stock exchanges.

9.5 What should I know as a shareholder?

As a shareowner or shareholder, you must know and understand that you are entitled to information about
the company you hold shares in, which can be obtained via mail, electronic communication or telephone.
Companies listed on stock exchanges are obliged to publish an annual report setting out their audited
financials for the previous year. Both current and future shareholders, as well as the FSCA, must be allowed to
have sight of these.

9.6 Why should I buy shares?

• Reduced risk: Licensed stock exchanges are highly regulated, and listed companies must comply with
strict requirements before they can list and trade their shares. The result is transparency and fairness,
allowing investors to trade in an efficient investment environment. It gives one peace of mind to know
one is investing in real companies, with supply, demand and easily verifiable company performance
determining market prices. You can also create a diverse portfolio by investing in different companies and
sectors since stock exchanges provide a central marketplace for publicly listed companies to raise capital from
investors.

• Simplicity: Technology has made it easy for investors to access information about shares and
companies, as well as to buy and sell shares. It is also easy to disinvest (cash out your investment) if you need
money. Increasingly, people are showing an interest in the stock exchange because they are not intimidated
by the investment process.

• Build wealth: Investing in equities is one of the easiest ways to grow one’s wealth in the long term.
Although share prices rise and fall all the time, a diversified portfolio can deliver solid results over time, providing
shareholders with dividends or profits earned from the sale of shares when their value increases.

9.7 Is it risky to buy shares?

There are no risk-free investments, and owning

R R
R shares is no exception. Not every company will
perform well, and many companies will record
R R R losses. If a company’s share price drops, your
investment will lose value. If you sell your shares
when the share price is low, you could lose your
initial investment entirely. Authorised users of
exchange platforms can help to ensure that your
portfolio is diversified, which means investing in a

R
spread of equities rather than in the stocks of one or
two companies. This helps because it spreads out
your risk so that when one share is not performing
well, there are others that do. However, risk tolerance
is very specific to each investor. Some may choose
to have a balanced portfolio with a mix of stocks and
bonds to spread their risk, while others may opt for a
high-risk focused portfolio.

100 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

10. Investing in a business
Putting money into starting and running a business is also considered an investment, whether you invest in your
own business or someone else’s. The South African economy is highly dependent on entrepreneurs, and there are
a lot of opportunities to invest in a start-up or established business.

There are different types of investors who are interested in funding private companies:

• Angel investors: Funding from friends or family members on very favourable terms to start a business.

• Venture capital investors: These investors get involved after the start-up phase and usually consist of a group
of more savvy investors offering growth capital, managerial know-how and other operational assistance. At this
stage, a firm is seen to have at least some long-term potential.

• Mezzanine investors: These investors invest in private companies to raise funds for specific projects or help
with the acquisition through a hybrid of debt and equity financing. This type of financing can provide more
generous returns compared to typical corporate debt. Mezzanine loans are most commonly used to expand
established companies.

• Private equity: This refers to later-stage private investing.

10.1 How do I get a return on investment (ROI)?

ROI measures and evaluates the performance or potential return from a business or investment. When you invest
in a private business, your return on investment is decided by how well the business does. If it makes a good profit,
you will have a good ROI. If it makes a loss, so will you.

10.2 How to calculate and interpret ROI

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment multiplied by 100.
The result is expressed as a percentage or, sometimes, a ratio.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 101

 Example
Say you invested R10 000 in your new company, Computer Repair 4U. You
now have a buyer for the business for R12 000. The ROI for this equals your
profit of R2 000 divided by your initial investment or R10 000:

R2 000 ÷ R10 000 = 0,2

0,2 x 100 = 20

Your ROI in this case is 20%

One disadvantage of ROI is that it does not consider how long you have had an investment and so makes it difficult
to compare two investments over time.

11. Conclusion
As you can see from Part 3 of this chapter, intermediate investors are more informed and work with more complex
investment opportunities.

We have discussed a variety of investment vehicles, some of which were built on what we learnt in the previous
chapter, and some of which were newly introduced, namely asset allocation, how to invest in CISs, bonds, shares,
and investing in a business.

102 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

12. Self-assessment
What is asset allocation, and why is it important?

Name three benefits of investing in a CIS?

What are the different types of bonds available to investors?

What do you need to know as a shareholder?

What are REITs?

How much can South Africans invest offshore per year?

What is the difference between a discretionary and a non-discretionary investment account?

What are some of the dangers of cryptocurrency?

Explain equity crowdfunding

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 103

PART 4: CHOOSING APPROPRIATE FINANCIAL
PRODUCTS FOR ADVANCED INVESTORS

1. Introduction
By now you have learned quite a few basics about investing and you might want to start your own personal journey
in buying shares. Do not wait too long, because only practise makes perfect. Direct investing in shares is an on-
going, evolving and learning journey with no final destination to reach before you can start.

There are two things you need to know to put together a diversified portfolio:

• where to get information about good companies/shares to buy

• what to do with the information

2. Where to find information

It is best to start with an industry or a company

• with which you are familiar

• that you think is good or popular
• that you believe provides great services or products

Take note: Getting to know the company you want to invest in is a cornerstone to success.

104 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Now get to know the company. Research is crucial before you do anything. The internet makes it easier than ever
to research a company – there is so much information available online that you cannot claim ignorance.

Useful sources:
• The company’s official website
• Your authorised user of exchanges (formerly known as a stockbroker)
• Financial/business newspapers.

3. What to do with the information

After finding information on the company whose shares you want to buy, you have to establish what exactly you are
about to buy or not.

According to Ralph Speirs, JSE CSI Officer, Marketing and Corporate Affairs, your research should tell you that
the company you are interested in is growing and financially sound, and that it is operating in a strong and growing
industry, offering services and products that consumers want.

But how can you be sure about getting it right?

4. Looking at the financial statements

In chapter 3, part 3, we had a quick look at the importance of financial statements. We will now look at
financial statements in more detail.

Due diligence
An investigation, audit, or review performed to confirm facts or details of a matter or company under
consideration. In the financial world, a due diligence requires an examination of financial records before
entering into a proposed transaction with another party.

Fundamental analysis
The process of getting to know a company through analysing its financial statements and operations.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 105

 R
R

Understanding financial statements

The hard truth is that if you want to do your due diligence and want to be able to read between the lines of financial
statements or annual reports, you will need a basic understanding of accounting principles to take a closer look
at the company’s financial statements. Fundamental analysis is a tried and tested method of identifying a good
company, and therefore, a good share.

While this is easy for an accountant, reading and understanding financial statements can be daunting for the rest
of us. Let’s look at a few necessary concepts to get you started.

A company’s balance sheet (Statement of Financial Position) gives you a financial summary of their net worth at
the end of a period. It measures the company’s assets less liabilities or what they have minus what they owe.

NET WORTH = ASSETS – LIABILITIES

Net worth is also known as equity or net asset value (NAV). The balance sheet is an important document
used to make sure that a company is in a strong financial position.

The income statement (Statement of Comprehensive Income) is the profit and loss account statement that
records how much money or profit the business has generated over a period of time.

PROFIT OR INCOME = SALES - EXPENSES

Financial Ratios
Financial ratios are tools to identify relationships between two or more figures found in the financial statements.

Earnings per share (EPS) is the single most important ratio in determining a share’s price. It measures the
portion of the business’s profits that are allocated to each ordinary share that is outstanding and is a means
to calculate the return on your investment.

EPS is the price you are willing to pay for the future stream of earnings. It is also a major component used
to calculate the price-to-earnings valuation ratio.

106 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

EARNINGS PER SHARE = (NET INCOME) / (NUMBER OF SHARES

You cannot begin to consider share prices and their value without understanding and including the
Price to Earnings ratio (P/E). You may sometimes also hear it referred to as the earnings multiple and is the
most widely used barometer of a company’s value.

PRICE TO EARNINGS = (SHARE PRICE) / (EARNINGS PER SHARE)

Now that we know what the important parts of financial statements are called and what they are for, the
question is what are you supposed to keep an eye out for?

You need to focus on the sales, income, debt numbers and liquidity (cash) in the financial statements to
guide you, so let us look at those.

• A signal of a growing company is one that is making more money in the current year than it did in the
preceding year. Take a look and compare this year’s net income to last year’s net income.

Net Income is simply a company’s earnings or profit earned after tax. This number is found on a
company’s income statement and is an important measure of how profitable the company has been over a
period of time.

• If a company offers desirable products and services and is competitive in its industry, it is
reasonable to expect its sales to increase.

Sales or revenue (income) refers to the money that a company receives when customers buy goods and
services from them. It is also reflected on the income statement.

Make sure that these figures reflect growth; some suggest that at least a 5% to 10% rise from the
previous year’s number is necessary to justify a company as growing.

• In recent years debt has been a growing problem for many firms and those that carry too much are at
risk of bankruptcy. A potentially bankrupt business obviously holds out little hope for a wealthier you,
so it is prudent to note whether the company has low or easily repayable debt on their books.

Debt

A company’s balance sheet will tell whether debt is a growing item or whether it is at least under control.
The debt-to-equity ratio will tell you how dependent the company is on debt or how much the company owes
and owns.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 107

 DEBT-TO-EQUITY RATIO = (TOTAL DEBT) / EQUITY

A debt-to-equity ratio below 1 is desirable, while a ratio higher than 2 is cause for concern because it tells
you that for each rand a company owns in assets there is twice as much debt.

Another financial ratio that will help you decide what to buy is the return-on-equity ratio (ROE). A ROE of 15
or more is often seen as a viable investment opportunity.

RETURN ON EQUITY (ROE) = (NET INCOME) / EQUITY

Dividends or cash pay-outs

A history of dividend or cash pay-outs to investors is a sign of a company

in good financial health.

DIVIDEND YIELD= (ANNUAL DIVIDENDS PER SHARE)

(PRICE PER SHARE)
In short: Look for a company that has low or no debt, is steadily growing
its earnings year after year and has a ROE of 15 or more.

5. Conclusion
Part 4 of this chapter focused on the advanced investor who wants to try his or her hand at direct investing. We
looked at where to find more information about a company or share, the importance of getting to know a com-
pany before you decide to invest, the importance of research and what your research should tell you. Lastly, we
learned more about financial statements and what to look out for.

Next, you can test your newly acquired knowledge on these themes.

108 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

6. Self-assessment
What are good places to find out more about a company or a share?

Why is it important to get to know a company before you invest?

Name 4 things that you want your research to tell you about a company

What is net income?

In what way do dividends show you whether a company is in good financial health?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 109

 CHAPTER 5:
TRADING PLATFORMS

110 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 1: HOW TRADING PLATFORMS WORK FOR
BEGINNER INVESTORS

1. Introduction
A stock exchange has two main functions, namely

• to help companies raise capital in the primary market

• to facilitate the trading of shares (and other instruments) in the secondary market.

In other words, they help to bring a company to market and then help the company to trade its shares.

Did you know?

Every day, more than R20 billion in shares changed hands on the JSE (2021).

As an investor, it is beneficial to have at least an elementary understanding of how a stock exchange works.
So, let’s have a look at some of the inner workings of a stock exchange. We will use the JSE as an example

Golden rules of investing and diversification

1. Do not borrow money to invest, and do not invest money that you cannot afford to lose.
2. Superior returns (high rewards) are not risk-free.

The Wealth Creation Process – JSE Limited

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 111

2. The central order book trading system

In the old days, traders on the market would shout out the prices at which they wanted to buy or sell shares. This
happened on a trading floor and was called the open outcry system.

The open outcry system has since been replaced by a new system called the central order book trading system.

Today, instead of shouting out the prices at which they want to buy or sell stocks, modern traders enter the prices
into the central order book trading system electronically. The central order book trading system then keeps an
anonymous list of the prices at which the traders want to buy or sell. The system finds and matches buyers and
sellers that entered the same price into the system. The moment a buyer and seller are matched, the system does
an automatic trade.

As an investor, you can still instruct your authorised user of trading platforms (your stockbroker) to buy or sell your
stocks on a current trading price available on the order book.

Diversification
A risk management strategy that mixes a wide variety of investments within a portfolio.

Central order book

An anonymous record of unexecuted orders waiting to be matched. The top priority
order is executed before other orders in the book, and before other orders at an equal
or worse price held or submitted by other brokers.

112 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

3. What is an index and what is it for?

A financial market index often serves as a benchmark to show you how well your investment performed. Indices
point to the benchmarks for the performance of a group of assets, e.g., a class of assets or an industry’s shares.
Indices also give you a look at how share prices change continually. This means that you can see how your shares
(or a whole industry or segment or even the entire market) performed and what they are worth at a given time.

The two most common indices on the JSE (2021) are the FTSE/JSE Africa All Share Index (ALSI) and the Top
40 Index. The ALSI represents 99% of the full market capitalisation (market value) of all eligible equities listed on
the Main Board of the JSE, while the Top 40 Index tracks the average moves or price of the 40 most investable
companies in the ALSI.

4. Conclusion
After reading Part 1 of chapter 5, we now know a little
more about trading platforms, how exchanges help to
bring companies to the market; and then help to trade their
shares, as well as about indices. We also looked at the
central order book trading system of the JSE

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 113

5. Self-assessment
Name the two most common indices on the JSE

What is the purpose of indices?

What is the central order book trading system?

114 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 2: TRADING PLATFORMS FOR INTERMEDIATE
INVESTORS

1. Introduction
As an intermediate investor, you want to find new investment opportunities to grow your money. You know that
following the news, reading market reports and keeping an eye on indices will help you find those new investment
opportunities.

In this section, we will discuss the different indices on the JSE, understanding financial news reporting,
online trading and derivatives.

2. Indices on the JSE

We already know that the two most common indices on the JSE are the FTSE/JSE Africa All Share Index (ALSI)
and the Top 40 Index. We will now have a closer look at some of the JSE indices as in 2021.
• FTSE/JSE Africa All Share Index, or ALSI represents 99% of the full market capitalisation (market value) of all
eligible equities listed on the Main Board of the JSE. There are roughly 140 companies in this index. The FTSE/
JSE All Share Index can further be split by size into the Large Cap, Mid Cap and Small Cap indices.
◊ The ALSI is the benchmark used by investors when trying to gauge the overall performance of the South
African share market.
◊ The ALSI is a market capitalisation weighted index. This means that if a company has a market capitalisation
of R90 million, and the index has a total market capitalisation of R900million, the company carries a 10%
weighting in the index.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 115

• The Top 40 Index: Represents the 40 most investable companies in the FTSE/JSE All Share index. These
are constituents of the All Share Index (J203) and are ranked by net market capitalisation or market value. The
number of instruments can exceed 40 as some companies issue multiple equity instruments, but the number
of constituents is fixed at 40.

• The vast number of indices that are available allow you to track and benchmark almost any focus you have
within the JSE.

• The small-cap index and mid-cap index focus on size. The small-cap represents the top 96%-99% of the
full market cap value of all ordinary securities listed on the main board of the JSE which qualify as eligible for
index inclusion. The mid cap represents the middle 85% - 96% and the large cap represents 85% of the full
market capital value.

• The Resource 10 Index and Industrial 25 Index are two of the sector focused indices.

• Prices can also be benchmarked by following the Preference Share or the Dividend Plus indices. Specialised
indices such as the Preference Share Index do not necessarily have much bearing on an investor’s specific
portfolio holding, because it is unlikely that an investor would include each of the preference shares in his
portfolio and in the same weighting as the index.

• FTSE/JSE Africa Index Series: Designed to represent the performance of listed South African companies,
providing investors with a comprehensive and complementary set of indices, based on a joint venture between
the JSE and FTSE Russell (FTSE), which measure the performance of the major capital and industry segments
of the African market.

Small-cap, mid-cap and large-cap shares

Listed shares are categorised according to the complete market cap value of a company, which is calculated
by multiplying the number of shares by the current share price.

116 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

3. Understanding financial news
Part of any serious investor’s task is to understand financial news reporting.

Good financial journalists are, unfortunately, a rare breed. This is because few have the skill to analyse the story
behind the numbers. You will not necessarily learn much if you read every available article and opinion since
information can be sensationalised or simply incorrect. It is important to be discerning when it comes to your
sources – there is no point in digesting dozens of media releases that spin the facts, present incorrect figures, or
take company spokespeople at face value.

Credible newspapers, magazines and websites will educate you rather than feed you rehashed press releases.
South African options to consider include Financial Mail, Finweek, Business Day, Fin24, Sake24, Moneyweb and
business programmes on television. Keeping abreast with financial and company news will further broaden your
understanding of the investment environment.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 117

To know what you are reading, you must ask three questions:

• Is the article based on data or opinion, i.e., how factual is the information?
• Is it descriptive of past conditions or predictive of the future? Most articles look to the past while very few give
a perspective on what might still come.
• Is the theory set out in the article verifiable?

Followed by these steps:

• Understand the consensus: Find what is generally agreed upon. Once you’ve done the groundwork on a
specific investment opportunity, you need to see through the generally accepted beliefs in order to follow it or
bet against it. Jot down what you read to help organise your thoughts.
• Find opposing opinions: You need to understand the other side of the trade. This means reading opinions
that differ from yours.
• Question what you read: Reporters are under intense deadline pressure and often frame issues in a way that
is confusing or distorted. The information may be incomplete, misleading, or simply wrong.
• Respect the data: Charts, tables, and numbers are good places to start for corporate results and economic
data. Make sure to check the primary source when possible.
• Avoid partisan interpretation: Turn off your political bias when you read and interpret the news but be wary
of commentators who have political agendas.
• Develop your own framework: Before you read the news, you must have your own framework in place for
decision-making. Otherwise, you’ll end up unduly influenced by what you read.

118 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

4. Online trading
Since you are stepping out on your own to invest, online trading by yourself might look attractive compared to work-
ing through an authorised user of trading platforms.

What is the difference between online trading and investing?

• Investing takes a long-term approach to the markets, for instance when you invest to supplement your retire-
ment income.
• Trading involves short-term buy and sell strategies to maximise your returns daily, monthly, or quarterly.
• Investors are more likely to ride out short-term losses, while traders will attempt to make transactions that can
help them profit quickly from fluctuating markets.
• Both attempt to make a profit in the financial markets, but they differ substantially, especially in risk.

4.1 Online trading software

• Trading software usually consists of a charting package that helps traders make buy and sell decisions.

• For a trader who trades frequently, this can be a vital part of achieving success as charting helps to evaluate
patterns in the trading data.

• Most online stockbrokers will offer some online trading software, and that should be sufficient for someone just
starting out.

A word of warning: Some trading software companies try to sell trading software and educational packages for
traders at high prices. They cold-call you and make online trading sound easy, which is not the case. Education is
freely available on the internet. However, if you do decide to buy a top trading software package, compare prices
first.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 119

4.2 Dangers of online trading

Online trading can be risky. While online trading gives you total control over your collection of shares (portfolio), you
would also need to research companies by yourself. If you do not have experience and background knowledge,
that may be difficult to do.

However, you will remember from chapter 4 that you can open different accounts with a full-service authorised
user of an exchange platform, namely a discretionary or a non-discretionary investment account. Opening a non-
discretionary investment account would give you the opportunity to decide on what trades to make after receiving
advice from an authorised user who has reviewed your financial position and investment targets. This opens an
opportunity to gain investment experience together with your authorised user.

As digital or online trading has become easier and more popular, the danger of overextending yourself or being
scammed has grown as well, especially among unsophisticated investors. Online trading may seem a safe option,
but scams abound on digital platforms, and you could easily fall victim to one of them.

• Scams: Fraudsters take advantage of economic downturns or crises, and investors should be increasingly on
their guard. Unfortunately, it is not always easy to tell a scam from a genuine investment opportunity. When
in doubt, ask an authorised user of exchange platforms or consult with the FSCA, as he or she has a good
understanding of the investment landscape.

• Speed: Although digital trading platforms are easy to access, and one can execute rapid trades, there is a risk
of ‘gambling’ with your money, overinvesting or making poor choices in a hurry. Most platforms limit how much
you can invest and what you can buy, which can prevent you from jeopardising your financial security.

120 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

5. Derivatives
The JSE defines derivatives as “a type of security or financial instrument whose value or price is derived from
its underlying asset (the asset to which the derivative references itself), in effect a contract between parties. The
main derivatives on the JSE are futures and options”.

5.1 How derivatives can fit into your portfolio

Investors typically use derivatives for the following reasons:

• To hedge a position: The investor hedges their investment in stocks by purchasing derivatives that will protect
against a price decline such as put options, short fences, etc.

• To increase leverage: The purpose of leverage is to enhance the magnitude of returns. The client only pays
a fraction of the exposure (i.e., margin). The risk is that the investor can lose more than their initial investment.

• To speculate on an asset’s movement: This involves trying to make a profit from a security’s price change.
The main purpose is to profit from betting on or against the direction you think the price of an asset will move.

• Call overwriting: A client sells a call option on a stock that the investor currently owns. Strike price of the call
is typically higher than current stock price. This is a yield enhancement strategy for buy only funds. The option
premium adds to the stock returns of the fund’s portfolio.

There are three main types of derivatives, although any contract written that promises returns based on an
underlying referenced asset, is a derivative:

• options
• futures/forward contracts
• swaps

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 121

There are dozens of strategies regarding the use of options, but the following are the most common.

OPTIONS STRATEGIES

Long call: You believe a security’s price will increase and buy the right (long) to own (call) it. If the security’s
price exceeds the exercise price by more than the premium paid for the call, you have made a profit.

Long put: You believe a security’s price will decrease and buy the right (long) to sell (put) the security. If the
security’s price is below the exercise price by more than the premium paid for the put, you have made a profit.

Short call: You believe a security’s price will decrease and sell (write) a call. If you sell a call, the counterparty
(the holder of a long call) has control over whether or not the option will be exercised. For you, as the writer of
the call, the payoff is equal to the premium received by the buyer of the call if the security’s price declines. You
will lose money if the security rises more than the exercise price plus the premium.

Short put: You believe the security’s price will increase and sell (write) a put. As the writer of the put, the payoff
is equal to the premium received by the buyer of the put if the security’s price rises, but if the security’s price
falls below the exercise price minus the premium, you lose money.

5.2 Futures/forward contracts

By separating the price from the physical delivery of goods, futures markets remove the uncertainty
associated with the price (because the price is determined in advance). An agreement is made between
you and a buyer or seller that an asset will be bought or sold in the future for a specified price. These
contracts are usually written using the spot or the most current price. The purchaser’s profit or loss is
calculated by the difference between the spot price at the time of delivery and the forward or future price. Profits or
losses are cash settled. If you want to lower your risk, futures may be a good choice.

Futures are standardised contracts that trade on exchanges, while forwards are non-standard contracts that are
traded over the counter (OTC). Forwards are inherently riskier products in terms of exposure to counterparty credit
risk, much less liquidity due to their customisable nature, and no price transparency to value the positions, which is
one of the benefits of exchange trading.

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5.3 Swaps

A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different
financial instruments. Most of these swaps involve cash flows based on a notional principal amount (a predeter-
mined amount) such as a loan or bond or any other instrument.

There are many variations of swaps, including:

• Interest rate swaps: Parties exchange a fixed-rate loan for one with a floating rate or the opposite. If one
party has a fixed-rate loan but has floating rate liabilities, they may enter into a swap with another party and
exchange a fixed rate for a floating rate to match liabilities. Interest rate swaps can also be entered through
option strategies, while a swaption gives the owner the right but not the obligation to enter into the swap.

• Currency swaps: One party exchanges loan payments and principal in one currency for payments and prin-
cipal in another currency.

• Commodity swaps: A contract where a party and counterparty agree to exchange cash flows, which are de-
pendent on the price of an underlying commodity.

6. Conclusion
Now that you have a better idea of indices, how to interpret financial news reporting, online trading and derivatives,
it is time for self-assessment.

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7. Self-assessment
List 4 indices on the JSE

How do you interpret financial news reporting?

What is the difference between online trading and investing?

Name the dangers of online trading

Define derivatives

What is a swap?

Define futures/forward contracts.

124 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

PART 3: TRADING PLATFORMS FOR ADVANCED
INVESTORS

1. Costs that eat into your returns

All costs have one thing in common: If the money is going somewhere else, it is not going to you.
Likewise, the money you pay to invest has a big effect on what you have left in your own pocket.

The following points are important to remember:

• All investments have costs.

• Money you lose to costs compounds (rises exponentially) over time, meaning it may reduce your potential
returns meaningfully.
• Because investments with higher costs have to overcome these expenses, their performance tends to suffer.

1.1 Why do costs matter?

Costs add up. You do not just lose the tiny amount of fees you pay but also all the growth that money might have had
for years into the future. Saving even a small portion of your fees can make a big difference to your end investment.

Example: Imagine you have R100 000 invested. If the account earned 6% a year for the next 25 years and had no
costs or fees, you’d end up with about R430 000. If you paid 2% a year in costs for the investment, after 25 years,
you’d only have about R260 000. You can see the damage: The 2% you paid every year would wipe out almost
40% of your final account value. That 2% is not as small as it seemed, right?

A 2013 National Treasury report noted that if you reduced your annual investment fees from 2.5% to 0.5%, you
would receive a benefit of 60% greater at retirement after 40 years. That means retiring with R1.6 million instead
of R1 million.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 125

1.2 Trading costs

Every transaction in shares is subject to trading fees. Some can be attributed to the mandatory costs incurred,
Securities Transfer Tax(STT), Investor Protection Levy (IPL) such as VAT and STRATE (South Africa’s central
securities depository) fees, while others include the charges incurred by brokers. These fees and expenses erode
your investment returns, especially if excessive buying and selling strategies are employed.

Clearly, it is important to pay attention to different fee structures when you decide on how you want to transact
within the share markets and when you choose an FSP.

1.3 Tax

Your growing portfolio may also be subject to tax payable to the government.

It is important to understand that unless it is a tax-free investment or tax-deductible portion, your investment is
subject to tax on your income earned or capital gains. These taxes come at different rates, so it is important to
know the difference.

• Dividend income is paid out of the profits of a corporation to the stockholders. If you receive an income out of
dividends, you may be expected to pay dividends tax. Normally the amount due is withheld from your dividend
payment and paid over to SARS by a withholding agent.

• Capital gains are profits made when an investment is sold at a higher price than the original purchase price.
The difference between the original purchase price and the higher price you sold your investment for, is subject
to CGT.

126 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

1.4 Inflation

Inflation is a rise in the price level of an economy, which erodes the purchasing power of the currency
operating in that economy. In short, inflation changes the value of your money over time. If you look back to
the past, it is obvious that everything was much cheaper. However, if you think about how much your
money will be worth in 20 years’ time, you may realise that everything will be far more expensive than it is now!

Keeping up with inflation is the very least your money should be doing. You can try to beat inflation by
aiming for growth in both capital returns and dividend yields to avoid a loss of purchasing power.

Your real return on any investment can only be calculated when inflation is considered. If you earn a return of 10%,
but inflation is at 6%, your real return will only be 4%.

• Take note: When considering dividend-paying shares, make sure that you are taking inflation into account.
For example, if a company consistently pays a 5% dividend over five years, but inflation has risen from 5% to
10%, then the dividend is disappointing. One advantage of dividends, however, is that they generate cash for
reinvestment, so they offer some protection against inflation.

• Inflation hedges are investments that aim to protect you against inflation. Including inflation hedges in your
portfolio may help you eliminate this risk of inflation. Gold is deemed by some to be a good example of such
an inflation hedging investment. Over the years, many investors have recognised that gold is one of the most
reliable hedges (or protections) against inflation – therefore, they include gold mining company shares in their
investment portfolio.

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2. TECHNICAL AND FUNDAMENTAL ANALYSIS
Successful investors are not afraid of research, research and more research. Technical analysis and charting are
two of the tools you can use to keep abreast of what is happening in the financial markets. We will have a closer
look at how these techniques can help you understand what the market is doing at a given time.

2.1 What is technical analysis?

• Technical analysis is a tool, or method, that you can use to predict the probable future price of a security or
stock based on market data.
• You can use it to evaluate investments and identify trading opportunities in price trends and patterns seen on
charts.
• There are two different ways to approach technical analysis: the top-down approach and the bottom-up
approach. Short-term traders often prefer a top-down approach and long-term investors a bottom-up
approach.

2.2 What can technical analysis do for you?

• Remove emotion from a trading decision.
• Generate buy and sell indicators and help locate new trading opportunities.
• Guide new traders towards a fundamental understanding of the core concepts of trading.
• Scrutinise the ways supply and demand for a security will affect changes in price, volume, and implied
volatility.
• Generate short-term trading signals from various charting tools.
• Improve the evaluation of a security’s strength or weakness relative to the broader market.

2.3 Fundamental analysis vs technical analysis

Technical analysis aims to predict the probable future price movement of a security based on market data like
price and volume, while fundamental analysis attempts to evaluate a security’s value based on business results
such as sales and earnings. Professional analysts often use technical analysis together with other forms of
research. In fact, practising equity analysts rarely limit their research to fundamental or technical analysis alone.

128 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

These are the centralise ‘major differences between the two types of analysis:

MAJOR DIFFERENCES
Technical analysis Fundamental analysis
Study of price action Study of factors affecting supply and demand
Studies the effect of market moves Studies the cause of market moves
Source: JSE, Grow My Wealth
2.4 What is charting?

Technical analysts make use of a variety of price charts in their attempts to predict price movement. Charts are
the working tools of the technical analyst. They are like a map showing you where a stock has been and where it
“might” be going.

The two primary variables for technical analysis are the time frames considered and the particular technical
indicators that a trader chooses to use.

The technical analysis time frames shown on charts range from one minute to monthly, or even yearly, time spans.

Popular charts used by analysts include:

• line charts
• bar charts
• candlestick charts
• point and figure charts

Popular indicators used by analysts include:

• Moving Averages
• Relative Strength Index (RSI)
• Stochastic Oscillator
• Williams %R

Of course, no technical indicator is perfect, and none of them gives signals that are 100% accurate all the time.

Smart traders are always on the lookout for warning signs that signals from their chosen indicators may be
misleading. Technical analysis, done well, can improve your profitability as a trader.

3. Conclusion
Always keep an eye on the costs of your investments at all times. The money you lose to costs rises exponentially
over time. Because investments with higher costs have to overcome these expenses, their performance tends to
suffer compared to lower-cost investments.

Successful investors are not afraid of research and more research. The more you know and understand what you
are investing in, the safer your investments are. Technical analysis and charting are two types of tools you can use
to keep abreast of what is happening in the financial markets.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 129

4. Self-assessment
Why do costs matter?

Complete the following sentence: A savvy investor knows their goals continuously

What is an inflation hedge?

What is technical analysis?

What is the difference between technical and fundamental analysis?

Why do technical analysts make use of a variety of price charts?

130 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

CHAPTER 6:
SCAMS AND FRAUDSTERS

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 131

1. Introduction
Impatience, desperation, greed and the fear of missing out are gateways to falling victim to fraudsters and scams.
Investors who are chasing enormous instant returns are susceptible to fraudulent get-rich-quick schemes. In
addition, the Covid-19 crisis of 2020 and onwards has resulted in South African consumers increasingly looking for
new investment opportunities and financial products due to economic challenges and uncertainty.

Many are being swindled out of their hard-earned cash by fraudsters who promise them a good return on their
investments. Whenever the supposed ‘greatest investment of all time’ presents itself, speak to your authorised
financial advisor to find out how it really works and if it is legitimate or not. It is important to ensure that any
financial advisor, platform, and investment product is fully licensed. As an investor, you have a right and a duty to
ask all the necessary questions.

Unsolicited investment opportunities that come to you via cold-calls, social media or unsolicited emails can
often be scams. The fraudsters may even pretend to represent an established wealth manager but will ask that you
only contact them on a personal email address or number. In addition, the fraudster could say the offer is available
for a short period of time only as it is greatly in demand. The fraudster may send you official-looking documentation
and ask for a copy of your ID or proof of address, but this is simply to gain your trust – and quick access to your
funds.

If an investment offers you very high returns, you need to start asking questions about the legality thereof, as well
as the associated risk. The old saying “If something looks too good to be true, it probably is” still holds true. Be wary
of promises of excessive returns, and always get a second opinion if you feel uncomfortable or are unsure of the
terms and conditions.

Be vigilant. It is best to take your time and make sure an investment opportunity is valid before making a financial
decision. Remember, scammers do not care about you – they only want your money.

132 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Pyramid scheme

A pyramid scheme is a scheme that requires you to make an initial entry payment after which you would be
required to recruit other members before earning a return on the original ‘investment’. The more recruits, the
greater the return.

Ponzi scheme

Ponzi schemes are based on fraudulent investment management services. Members contribute money to
the ‘portfolio manager’ who promises them a high return. When those members want their money back,
they are paid out with the incoming funds contributed by participants who join at a later stage. The person
organising this type of fraud manages the entire operation. They merely transfer funds from one client to
another. There is no real investment product, or the investment product does not provide the returns for the
high pay-outs to “investors”.

2. Types of scams
2.1 Pyramid schemes

These continue to be popular, and unfortunately, a large number of people still fall for them, lured by the prom-
ise of impressive returns. These schemes are illegal, so if you become aware of one, report it to SARB and the
South African Police Services. There are also a number of scam awareness websites where consumers post their
experiences and warnings to others.

Pyramid schemes recruit members, promising to pay them or provide them with goods and services in
exchange for enrolling other members in the scheme. Money for this ‘investment’ comes in when new members are
recruited. Although this seems harmless enough and not all that different from crowdfunding strategies, there is no
underlying business or investment opportunity and no legitimate products and services to be enjoyed.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 133

Instead, the early investors receive a ‘return’ on the funds, which comes from the money put in by newer investors –
these latecomers will almost never see any returns as the pyramid has to tumble at some stage.

A pyramid scheme gets its name from the fact that there are a few people at the top of the pyramid receiving a ‘return’
on their money, and large numbers of people at the base who cannot recruit additional members and who therefore
simply lose the money they have put in (the sliding scale of returns benefits the founders and early adopters the
most). When they report the pyramid scheme to the authorities, the founders will likely have disappeared with the
cash.

2.2 Ponzi schemes

Ponzi schemes appear to be similar to pyramid schemes, but a Ponzi scheme sees initial investors handing their
money over to a portfolio manager who has no real investment products (or investment product with returns
too low to fund the high pay-outs) but who pays out funds to investors with money coming in from additional
investors. The scheme was named after Charles Ponzi, who told investors that he could make a profit of 50% for
them in a mere three months. The 1920s swindler was able to maintain the illusion that he was running a legitimate
business for as long as new investors were contributing funds and not demanding repayment of their capital.

R
Stokvel

A stokvel is a voluntary group of natural

persons (members) bound by a common
cause. They pool financial resources together
for the benefit of the group. Each member
receives a large pay-out from the pooled
monies on a rotational basis.

2.3 Pyramid schemes disguised as stokvels

Stokvels have a long history in South Africa, and most are trusted savings vehicles. Unfortunately, fraudsters
have found a way to turn some stokvels into pyramid schemes, using a WhatsApp chat group to reach members.
Members have to pay a joining fee of R200 and are promised a return of around R1 000 for recruiting two or more
people to the group. This is not how traditional stokvel work, which sees a group of likeminded people coming
together to save for particular goals. Each stokvel member puts money into a kitty each month (say R100), and
every member has a turn to receive the pooled funds (R100 from 10 members if R1 000).

Stokvels should be registered with the National Stokvel Association of South Africa (NASASA). If in doubt, ask
the stokvel for the NASASA registration number and check with NASASA to make sure. Do not join an illegitimate
stokvel as it may be a scam.

134 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Examples of pyramid schemes and Ponzi schemes

The following fraudulent schemes have seen many South Africans robbed of millions of rands:
• WhatsApp stokvels
• Pipcoin, a cryptocurrency scheme
• SAcoin, a rare coin investment scam
• Copy Profit Success (CPS) Global
• BTC Global, a cryptocurrency trading
platform
• Mavrodi Mundial Moneybox
(MMM)

Be aware that there are new

schemes launched almost daily and
arm yourself with knowledge so that
you know how to spot them.

Remember that scammers want you to act

in a hurry and promise returns that could solve
all your financial problems.

Examples of Ponzi schemes that have

operated in South Africa include:

• Invest200, an invest-money-for-profit
scheme
• Kubus scheme, which involved the
cultivation of milk yeast cultures to
make a beauty product

Case study
Some schemes may go as far as to pay you to invest, encouraging you to make a similar outlay.

Sandra was very excited about the money-making advice she received.

A friend told her that if she invested R1 000 she would get R200 back after a month. “That is a return of
20%,” the friend said excitedly. Sandra felt optimistic about future profits. She would never get that kind of
return at a bank!

She decided to invest R1 000 every month, but before she could do so her father told her that he had spoken
to his authorised financial advisor.

The financial advisor saw the “investment opportunity” in quite a different light.

“Beware”, he said, warning that Sandra was most likely “investing” in a fraudulent scheme. “Remember that
all you see at the end of the month is the R200 “return” you get from the scheme. Where is the rest of your
R1 000? It is still with the scammer who has made R800 – R600 more than you.

“If you invest R1 000 and get R200 back after a month (a 20% return), you may feel optimistic about future
returns and put in a further R1 000. However, the R200 “return” came from the R1 000 you put in, and the
scammers now have R1 800 while all you have is R200!

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 135

2.4 Crypto asset scams
We learned in chapter 4 that, from 19 October 2022, providers of financial services related to crypto assets are
required by law to act with honesty, integrity, due skill, care, diligence and in the interests of clients. Complaints can
be lodged with the FAIS Ombudsman.

Before investing, approach a licensed advisor to do a risk assessment and suitability analysis.

Remember: Crypto assets are not for everyone.

2.5 Online trading scams

Online trading scams have increased significantly in recent years, with fraudulent forex schemes topping the list. A
fraudulent forex scheme is an online trading platform that offers “guaranteed” exceptional high profits and returns.
The high returns are said to be generated by something unique that the trading platform is offering, for example
training or software algorithm. These promises are false and used to defraud traders, who when they try and
withdraw their investments are unable to do so.

Keep up to date with warnings issued by the FSCA about fraudulent forex schemes by visiting;
https://www.fsca.co.za/Pages/Media-Releases.aspx

Other online trading scams include those trading in stocks, crypto-asset, precious metals, commodities and binary
options.

Many Forex fraudsters and scam artists use social media to find their next victims. Don’t be
Quick lured or fooled by images of fancy lifestyles. Do your due diligence before parting with your
Tip! hard-earned cash!

136 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

2.6 Fake websites

If you have found an opportunity via a website, check for red flags that may indicate it is fraudulent:

• Is the connection secure (showing as a green padlock in the address bar)?

• Are contact details for a firm’s switchboard available in a prominent location?
• Do all links work?
• Based on the copyright date at the bottom of the page, is this a long-standing site or one that was set up
recently?

If the answer to any of these is ‘no’, it may be a scam webpage. Another indicator of a fake website may be
spelling mistakes in the URL or content, or poor language use.

2.7 Identity hijacking

Fake investment websites steal a well-known person’s identity and use it to extract money from you by posing as
well-known financial institutions. They create the impression that this famous person has benefited greatly from the
scheme, and so could you.

These websites are often hard to distinguish from genuine ones, display one type of product promising a high
return, and ask you to leave your contact details to receive an investment brochure.

2.8 Pump-and-dump fraud

Here, a fraudster will deliberately buy the shares of a very low-priced stock of a small company of which the shares
are not often traded. False information is then spread about the company. This increases the interest in the stock,
which increases the stock price. Investors start buying the stock as they believe that they are getting good value for
money, pushing the price of the stock up even more. At this point, the fraudster dumps his or her shares at a high
price and disappears, leaving many people caught with worthless shares of stock.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 137

2.9 Advance fee fraud
The scam offers to pay a high price for worthless stock in your portfolio. However, you will have to pay a fee in
advance for this service. Needless to say, if you do pay this fee, you will never see that money again.

2.10 Offshore scams

These scams can take a number of forms and are often a combination of a number of different scams. The scams
promise huge profits and tax concessions if funds are invested in another country.

3. What to look out for

Be wary of cold calls: Legitimate financial institutions and investment companies will never contact you out of the
blue. If you have been contacted in this way, this is likely to be a scam.

Source phone numbers yourself: Do not call back on a number you have been given by the person you are
speaking to, either by email or by phone. Only call back on a trusted number you can look up yourself.

Watch out for brand impersonation: Brand impersonation fraud is increasingly common. If you have been
contacted by email, pay attention to the sender’s address. Is it the real address of the institution that pretends to
contact you?

When is it too good to be true: True investment opportunities will usually be accessible for longer than a few
hours or days. If you are being pressured to invest now because the opportunity will not be available for long, tell
the person you are speaking to that you do not mind missing the opportunity if that is what it takes to make sure
the investment offered is real.

Take your time: Do not rush into anything. Do not disregard fraud warnings when making payments, and always
make sure you are 100% certain it is not a scam before making an investment.

138 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Take your time: Do not rush into anything. Do not disregard fraud warnings when making payments, and always
make sure you are 100% certain it is not a scam before making an investment.

Guarantees: Be suspicious of anyone who guarantees you a return. The investment will always carry a degree of
risk.

Unauthorised financial advisors: Many scams involve unauthorised financial advisors selling unregistered
investments, including shares, bonds, hedge funds and other fictitious instruments.

Overly consistent returns: Investments that go up month after month or that provide remarkably steady returns
irrespective of the market conditions are likely to be scams.

Complex strategies: Avoid anyone who credits their success with a highly complex investing technique. If they
cannot explain it clearly, walk away.

Missing documentation: If someone tries to sell you an investment without a prospectus or an offering circular,
he or she may be selling an unregistered investment.

4. What to do when you find yourself investing in a scam

• Cut contact with the fraudster and report the fraud to the South African Police Service (SAPS).
• Alert your bank if you have shared your bank account details with the fraudster and stop any debit orders
pertaining to the ‘investment’.
• Keep all written communication, which can be used as evidence later on.
• Victims of fraud are unfortunately vulnerable to scammers posing as police or lawyers, who advise them they
can help them to ‘recover’ the money but at a fee. This is because fraudsters frequently share the contact
details of their victims with other fraudsters (this is known as ‘fraud recovery fraud’). If possible, approach the
authorities rather than someone who cold calls you to offer help.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 139

5. Knowledge is protection
Always research the individual or company offering you an investment opportunity. They may have an
official-looking website, but this does not mean they are registered or legitimate. When in doubt, as an
authorised financial advisor to look into the company for you. If necessary, establish their physical existence and
try to ascertain whether they are ‘fronting’ or a genuine going concern.

• The FSCA will be able to tell you if the company is authorised to conduct business in South Africa.
Fraudsters have been known to steal the registration number of an approved financial services provider, so
you may need to dig a little deeper.
• Pyramid schemes hold seminars or household meetings to attract new members or send unsolicited messages
via email, post or social media. They can also ‘cold call’ you. Few people like to be rude, which is something
they are counting on – and they also rely on the fact that you may keep such a meeting from your spouse,
children or neighbours. It is best to discuss possible opportunities with people you know as you are in a good
position to warn others about a potential scam. Fraudsters often use members to attest to their good reputation
at meetings, but this does not mean they are above reproach – do your homework.
• Some legitimate businesses also contact you through various methods, so make sure you know the
difference between a fraudulent and a genuine organisation.

Important questions to ask a person or company that wants you to invest with them

• Are you registered with the FSCA?

• What is your financial services provider (FSP) licence number?
• May I see your company registration?
• Is your stokvel registered with NASASA? What is your registration number?
• Who leads the stokvel, and can I speak to them and examine their constitution?
• Are you registered with the Financial Planning Institute (FPI)?
• What are your qualifications, and how long have you been in business?
• What financial product am I investing in, and what are the associated risks?
• Who do I call if I have a query or complaint?

6. Conclusion
Impatience and greed, as well as economically challenging times, and the uncertainty they bring, are breeding
grounds for fraudsters. Do not become the hard-working investor who gets swindled out of their hard-earned cash
by empty promises of good returns.

Be vigilant and take your time before you make any financial decisions.

Have you been targeted by fraudsters?

Contact the South African Reserve Bank:

Telephone: 086 127 272
Email: sarbfnsdept@resbank.co.za for cross-border fraud and scams
Website: www.resbank.co.za

140 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

7. Self-assessment
How does a pyramid scheme work?

How does a Ponzi scheme differ from a pyramid scheme?

What is identity hijacking?

How can you try to find out if a website is genuine or fake?

List as many questions as you can remember to ask a company or person who wants you to invest with
them?

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 CHAPTER 7:
KNOW YOUR RIGHTS

142 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

1. Introduction
Financial sector laws are in place to protect financial customers. These laws ensure that financial institutions are
transparent, fair and well managed, so that they can and do make good on their commitments to you, at a fair price.

The Financial Sector Regulation Act (Act 9 of 2017) establishes the FSCA as a market conduct regulator,
responsible for ensuring that financial institutions treat their customers fairly, in all interactions and that the
financial markets are fair and efficient for investors. To achieve this, the FSCA monitors financial institutions to
promote their compliance with laws that govern their conduct, Treating customers fairly outcomes below:

Financial Customers
People who buy financial products and services, also referred to as consumers.

The Treating Customers Fairly Outcomes

TCF Outcome 1
Customers must feel confident that they are dealing with an institution where TCF is at the core of their culture.

TCF Outcome 2
Financial products and services in the retail market which are sold and marketed are designed according to the
needs of the customers identified and targeted accordingly.

TCF Outcome 3
Customers are provided with clear information and kept appropriately informed before, during and after point of
sale.

TCF Outcome 4
Advice is suitable and according to the customer’s circumstances.

TCF Outcome 5
Service is of an acceptable standard and products perform as customers have been led to expect.

TCF Outcome 6
Customers do not face unreasonable post-sale barriers when they want to change a product, switch providers,
submit a claim or make a complaint.

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The FSCA also makes use of financial sector laws to regulate financial institutions depending on the specific
activities those institutions undertake. For example, the Financial Advisory and Intermediary Services Act (FAIS
Act) came into operation on 30 September 2004. The purpose of the FAIS Act is to protect financial customers by
governing the way in which financial institutions market and sell their products. It also aims to improve the
quality of financial advice that may be given by your broker/financial advisor, to ensure that the advice is suitable
for your needs and circumstances.

In terms of FAIS Act, who can give advice and render intermediary services (financial services)?

• Any person who gives advice or renders an intermediary service or both in respect of a financial product must
be authorised as an FSP or must be appointed as a representative of an authorised FSP.
• FSPs are authorised by the FSCA, and representatives are appointed by the FSP.
• It is the responsibility of the FSP to ensure that its representatives are fit and proper. This, among others,
entails that the FSP must check that its representatives are persons who are honest and have integrity, are
competent to render financial services.

As a consumer you should always check that your financial services provider (financial
Quick institution) is properly licensed and authorised by the FSCA. To confirm, visit www.fsca.
Tip! co.za, email enquiries@fsca.co.za or call 0800 20 3277

Other acts that protect you as a financial customer include:

• Collective Investment Schemes Control Act (CISCA), which governs financial institutions that provide and
manage CIS portfolios.
• Pension Fund Act, which governs all the different types of retirement funds, including those provided by insurers
and occupational funds provided by employers, as well as the boards of funds and fund administrators.
• Insurance Act, which governs insurers and related persons.
• Banks Act: governs banks and any person or entity that accepts deposits.
• Financial Markets Act: governs the financial markets, financial market participants and financial
instruments.

144 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

2. Your rights as a financial customer
When it comes to investing in financial products, and receiving financial advice to help you do so, it is important to
keep the following in mind.

2.1 You have the right to information, such as:

• A written quotation
• Purchase document within 30 days of signing the application
• Information on how to submit a claim
• The total cost of the financial product per month e.g. insurance
• Commission paid to any intermediary and how this is calculated
• Fees for services rendered in relation to a financial product
• Inclusions and exclusions of the policy i.e. what does the policy cover and not cover
• Physical address and telephone number of the financial services provider
• Who to complain to if you are unhappy with the financial product or service you have received (the dispute
resolution process).

2.2 You have the right to a grace period

If, for instance, you are the owner of a policy, the grace period must be clearly set out in the policy document. It
usually means that you are allowed to skip (not pay) your premium for one month, and your policy will remain valid.
You will have to catch up with your skipped payment in the following month.

2.3 You have the right to cancel (cooling off period)

You have 30 days to change your mind after you signed a purchase contract. This is called a “cooling off” period.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 145

2.4 You have the right to complain

You can always complain or raise a dispute with your financial institution if you feel you have not been treated fairly;
if the financial product or service does not meet your expectations; or if you have received poor service.

You also have access to alternative dispute resolution channels if you are not satisfied with how the financial
institution has handled your complaint as listed below.

You are empowered to hold your financial institution to account!

An empowered consumer is someone who is able to make informed financial decisions and can hold
his or her financial institution to account for poor service received or broken commitments. If you believe
that a financial institution has provided you with poor or sub-standard service and has not lived up to its
contracted commitments or has treated you unfairly, you have the right to complain and be heard.

Herewith the general dispute resolution process to follow when engaging with the financial services industry:

Step 1: Write a formal letter of complaint against the relevant company/person or entity whose conduct/
product/service you want to complain about and give them the opportunity to respond in writing.
Step 2: If you are unhappy with their response you may refer your complaint to the relevant Ombudsman.
Step 3: If you are still not satisfied with their response, you may contact the FSCA. Read more about the
role of the FSCA in section 4 below specifically with regards to investment complaints.

See Parts 1 and 3 for the FSCA’s and the Financial Sector Ombudsmen’s contact information respectively,
in the USEFUL CONTACTS section.

There are currently five different Ombud schemes in the financial sector, each providing an impartial dispute
resolution platform that is free to consumers and external to financial institutions. Your contract must provide you
with the contact details of the various ombudsmen. Refer to Part 3 for a list of the Financial Sector Ombudsmen’s
in the USEFUL CONTACTS section towards the end of this guide.

Conduct that can lead to complaints

• Contravening or failing to comply with any instruction given by the investor or any agreement or
mandate entered into with the client.
• Acting dishonestly, negligently or recklessly.
• Treating the investor unreasonably or unfairly.

146 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

3. Your responsibility as a consumer
As a consumer, you are entitled to protection against unfair treatment, but you also have responsibilities,
including:

• choosing an FSP that is registered with the FSCA.

• asking to see the FSPs certificate and license number.
• making sure that the paperwork is complete before you sign it .
• asking questions and ensure that the FSP answers them in clear and simple language so that you have a clear
understanding of what you are buying. You can also have the document explained to you in your language of
choice.
• storing the policy document in a safe place.
• reading through the entire contract document before you sign.
• making sure you understand what you are going to be paying for.

In a 2012 article titled South Africa: Know Your Rights and Your Responsibilities, corporate and commercial law firm
Werksmans Attorneys pointed out the following consumer responsibilities.

• Read. Read agreements, including the terms and conditions, before signing. If you are unsure about
anything, ask questions so nothing is unclear.

• React. If you receive any kind of legal documents, such as a summons or notice of motion, react as quickly as
possible because you are given a limited number of days to respond. The amount of time you have will be in
the document.

• Record. Write down as much as you can – from simple details such as the name of the person that you
spoke to at a consumer complaints desk, to more important details such as discussions and resulting
arrangements. If you ever have a legal problem at a later stage, it will be far easier to prove the facts if you
have them in writing.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 147

• Rectify. Correct errors timeously. If you see something strange, for example, an amount on your statement or a
deduction on your payslip, deal with it as it happens. It will be far more difficult to reverse charges or deductions
after a few months.

• Review. Check quotations and prices before accepting them. According to the Consumer Protection Act (CPA),
you are entitled to a written quotation for any repair or maintenance services over R1 in value.

• Reconsider. The CPA allows you to reconsider a purchase made as a result of direct marketing. But it is your
responsibility to reconsider and inform the supplier of your decision in writing, within five business days from
the date on which the transaction was concluded or the goods were delivered to you.

• Rely. Consumers have the right to complain to the relevant Ombudsman of certain service industries
(e.g., banking, credit, motor, press, short-term and life insurance), who will try to mediate between you and
the supplier to solve the issue. However, it is your responsibility to choose respectable suppliers that are
governed by these bodies if you wish to rely on this option.

• Resolve. It is your responsibility to try to resolve your consumer rights issue with the supplier directly.
Certain resources will only be accessible once you have done so.

• Resist. Think about the consequences of overspending and resist the temptation. Be aware of the impact of
your consumer behaviour on your own pocket and the community around you.

• Relay. Tell others what you learn about consumer rights and responsibilities. The National Consumer forum
highlights the following consumer responsibility: “organise together as consumers to develop the strength
and influence and to promote and protect our interests”. The CPA allows for recognised consumer protection
groups to act and protect the interests of consumers individually or collectively.

148 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

4. The FSCA
4.1 The role of the FSCA

The FSCA is mandated to educate and protect consumers and investors. It does this through supervising
compliance of financial institutions with financial sector laws, and by educating and empowering financial
consumers.

It is important to recognise that the FSCA does not resolve individual customer complaints or
contractual disputes between the customer and his or her financial institution. However, the FSCA
may investigate complaints where there is an alleged transgression of law, or where there is a
concern that the conduct and practices of a financial institution may pose a risk for investors at large, rather than
a single investor.

4.2 What the FSCA does not do

• The FSCA does not sell financial products

• The FSCA does not offer any financial advice
• The FSCA does not manage money on behalf of financial customers
• The FSCA does not regulate pyramid or Ponzi schemes, but we take our responsibility of alerting customers to
these schemes/scams very seriously
• The FSCA does not regulate credit agreements
• The FSCA does not regulate matters relating to private investments that are not conducted through a
registered market

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 149

4.3 How are investors in South Africa’s financial markets protected?
The responsibility of the FSCA’s Market Integrity Supervision Division is to supervise and oversee the efficient and
effective functioning of the capital markets, including market infrastructures and market participants. It is therefore
responsible for the licensing and supervision of market infrastructures such as the licensed exchanges, clearing
houses and central securities depositories.

The Financial Markets Act (FMA) makes provision for an exchange, a central securities depository, and an
independent clearinghouse. The FMA makes provisions for exchange platforms to use the self-regulatory
organisations (SRO) model to supervise and regulate their respective members. An SRO, like a stock exchange, is
allowed to set and enforce regulations and standards for its members.

As SROs, exchanges have to abide by the Financial Services Ombud Schemes (FSOS) Act, which adds an extra
layer of protection for investors. This legislation allows for the Financial Services Providers Ombudsman to act as
an impartial party in disputes between FSPs and clients.

Licensed Financial Market Infrastructures (2022)

Exchanges: JSE Limited (Johannesburg Stock Exchange), Cape Town Stock Exchange (previously known
as 4AX), Equity Express Securities Exchange, A2X Markets

Clearing houses: Strate Ltd, JSE Clear Limited

Central Securities Depositary: Strate Ltd and Granite

150 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

4.4 How and when to submit a complaint to the FSCA
Important
Submitting a complaint to the FSCA is a last resort, if you are not Ombud’s mostly deal with cases where
satisfied with the formal response received from a financial service the consumer seeks monetary relief.
provider/financial advisor and respective Ombudsman. The FSCA on the other hand deals with
conduct related complaints.
The FSCA will investigate complaints where there is a concern that the
conduct of the financial institution may pose risks for investors at large and It is possible for both the FSCA and the
therefore does not merely focus on the circumstances of the individual relevant Ombud to look at the same
investor (which relationship with the financial institution is governed by complaint from different perspectives.
contract). If you do submit a complaint to the FSCA, make sure that
you have included as much details as possible and provide any supporting documents in your possession, so that
the FSCA is aware of the background and exact reasons for the complaint. This will place the FSCA in a position to
analyse and investigate the complaint.

Kindly take note that the FSCA does not issue monetary relief to complainants/consumers, issuing of such
relief falls within the jurisdiction of the relevant ombud schemes.

The FSCA investigates matters relating to the conduct of financial service providers and at the conclusion of the
investigation determines whether or not to take further action.

Complaints to the FSCA can be submitted as follows:

• Complete the online complaint form on the FSCA website (www.fsca.co.za)/(https://www.fsca.co.za/Pages/

Contact-Us.aspx)

4.5 What information is required?

Complainants should provide the FSCA with:

• the name and surname of the complainant

• contact details (including postal address, telephone number, fax number and e-mail address, whichever is
applicable)
• full details of the complaint or grievance
• copies of any relevant documentation that supports the complaint
• name of the financial services provider/product provider/financial advisor complained against
• details of the steps, the complainant has already taken to resolve the complaint or grievance
• outcome the complainant would like to receive.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 151

4.6 How will I know what the outcome of the investigation is?

The FSCA will advise you in writing of the outcome of the investigation and the reasons for reaching their conclusion.

5. What are my rights if I have a complaint against an unregistered financial

institution?
Unfortunately, the financial sector ombud’s and the FSCA can only exercise their roles and responsibilities in
relation to entities that are licensed to provide financial products and financial services.

Where you have interacted with an unlicensed entity, you can report this to the FSCA, as conducting certain
activities without a license is illegal.

6. Conclusion
Today, no consumer needs to be a victim of unfair treatment. Know your rights, and do not hesitate to lodge a
complaint if you feel that you have been wronged or you are unsatisfied with the service or financial product that
has been sold to you.

152 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

7. Self-assessment
What rights do consumers have?

Name all the consumer responsibilities you can remember.

Can a consumer complain about their financial institution? How should they do so?

What is the mandate of the FSCA?

What does an Ombudsman do?

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 153

 CHAPTER 8:
A FINAL NOTE

154 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

The aim of this investment guide is to inform, educate and stir you into action. To learn more about planning your
financial future, financial discipline and investing will find you in a much better position financially in a decade, or a
decade or two!

You have learned more about:

• effective day-to-day money management

• financial knowledge-seeking to support sound financial decision-making
• gaining insight into your own financial needs
• financial planning and goal setting
• investing for the beginner, intermediate and advanced investor
• types of investments
• the importance of a financial advisor
• following through on financial decisions.

The deeper understanding you have gained about money management and investing will motivate you to:

• take those first steps towards seeing your money grow

• believe that your life can improve
• grow wealthier as an individual, family and as part of our South African nation.

Lastly, remember that financial capability opens doors to better financial decisions, which may lead to a higher
quality of life.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 155

USEFUL CONTACTS
The organisations listed below can assist you if you have a complaint or if you want more information. You have a
right to complain if you are not satisfied with the service/financial product received from an insurance company, a
financial advisor/financial service provider.

Herewith the general dispute resolution process to follow when engaging with the financial services
industry:

• Step 1: Write a formal letter of complaint against the

relevant company/person or entity whose conduct /
product / service you want to complain about and give
them the opportunity to respond in writing.

• Step 2: If you are unhappy with their response you

may refer your complaint to the relevant Ombudsman

• Step 3: If you are still not satisfied with their response,

you may contact the FSCA. Read more about the
role of the FSCA in section 4 below specifically with
regards to investment complaints.

156 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

Useful contacts
PART 1: FINANCIAL SECTOR REGULATORS Call centre: 0861 12 7272 (SARB)
0800 384 425 (Reporting of
FINANCIAL SECTOR CONDUCT AUTHORITY
commercial crimes or unethical
(FSCA)
behaviour)
Telephone: 012 313 3911 (PA)
To check if an FSP or financial advisor is authorised
Fax: 012 313 3197/3929
to sell you financial products and services, as well as
Email: SARB-PA@resbank.co.za
which products and services as well as which products
PA-Info@resbank.co.za
they can sell you contact the FSCA. You can also report
sarbfnsdept@resbank.co.za
forex and other investment related scams to the FSCA.
(reporting of cross-border fraud
and scams)
Call centre: 0800 20 3722 (FSCA)
Physical address: 370 Helen Joseph Street,
Telephone: 012 428 8000
Pretoria, 0002
Fax: 012 346 5616
Postal address: P.O. Box 427, Pretoria, 0001
Email: enquiries@fsca.co.za or
Website: www.resbank.co.za
complaints@fsca.co.za
Postal address: P.O. Box 35655, Menlo Park,
0102
NATIONAL CREDIT REGULATOR (NCR)
The NCR aims to support the social and economic
Physical address: Riverwalk Office Park, Block B,
advancement of South Africa by regulating for a fair and
41 Matroosberg Road, (Corner
non-discriminatory marketplace where consumers can
Garsfontein and Matroosberg
access credit, and promoting responsible credit granting
Roads), Ashlea Gardens,
and credit use, and effective redress. If you need
Extension 6,
information or have a complaint against credit providers,
Menlo Park, Pretoria
credit bureaux and/or debt counsellors, contact the
Website: www.fsca.co.za
NCR.
For more consumer financial education information or to
Call centre: 0860 627 627
request a free workshop, contact the FSCA’s Consumer
Telephone: 011 554 2700
Education Department.
Email: info@ncr.org.za
complaints@ncr.org.za
Email: ced.consumer@fsca.co.za
workshops@ncr.org.za
Website: www.fscamymoney.co.za
Debt counselling
related complaints: dccomplaints@ncr.org.za
THE SOUTH AFRICAN RESERVE BANK (SARB) Postal address: P.O. Box 209, Halfway House,
/ PRUDENTIAL AUTHORITY (PA) 1685
The SARB protects the value of the South African rand Physical address: 127-15th Road, Randjespark,
and works to enhance and protect financial stability. Midrand, 1683
The bank has established an independent external Website: www.ncr.org.za
hotline service that enables whistle-blowers to report
wrongdoing related to the business of the SARB and
guarantees employees and members of the public their
anonymity if they so choose. If you want to report a
commercial crime or unethical behaviour, contact the
SARB.

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 157

 EQUITY EXPRESS SECURITIES EXCHANGE
PART 2: SELF-REGULATORY
(EESE)
ORGANISATIONS (SRO) EESE is the first independent black owned equity
exchange in the country. It was specifically created to
JOHANNESBURG STOCK EXCHANGE (JSE)
look after the needs of broad based black economic
The JSE monitors compliance of its members with
empowerment schemes. It is unique in the exchange
exchange rules and ensures that markets operate in
environment in that it specifically caters for companies
a transparent manner, ensuring investor protection.
with restrictions although these restrictions do not
Similarly, issuers of securities must comply with the JSE
Listings Requirements, which aim to ensure sufficient necessarily only relate to shareholder matters.
disclosure of all information relevant to investors. The
financial sector conduct authority (FSCA), supervises Telephone: 011 271 1737
the JSE in the commission of its regulatory duties. Emai: info@eese.co.za
complaints@eese.co.za
For any query, concern or complaint related to trading
Postal address: PO Box 1266, Bramley, 2018
activity in one of the JSE markets, including potential
market abuse or if the operation of your account at one Physical address: 7 Junction Road, Bramley, 2018
of the JSE member firms if the member firm has not Website: www.eese.co.za
satisfactorily addressed your issue, you may contact
the JSE Market Regulation Division. The JSE also CAPE TOWN STOCK EXCHANGE (CTSE)
has an Ombudsman which comes into effect when a
consumer reports a complaint. CTSE is South Africa’s stock exchange for small and
medium sized businesses. Their focus is on giving a
Telephone: 011 520 7000 diverse range of companies access to capital and
Fax: 011 520 8584 investors. Contact CTSE to find out more about
Email: info@jse.co.za (General
investing for your SMME.
enquiries)
surveillance@jse.co.za
(JSE Market Regulation Division) Telephone: 011 100 8352
Postal address: Private Bag X991174, Sandton, Email: info@ctexchange.co.za
2196 Physical address: 5th Floor,68 Albert Road,
Physical address: JSE Limited, One Exchange Woodstock, 7925
Square, Gwen Lane, Sandown,
Website: www.ctexchange.co.za
2196
Website: www.jse.co.za
ZAR X
STRATE ZAR X is a licensed stock exchange that uses disruptive
Strate serves the financial market through the fintech to create a more efficient market. To find out
safekeeping of the legal, digital record of securities more about how they do this contact ZAR X.
ownership, providing associated settlement and asset
services and facilitating the reuse of securities to benefit
Telephone: 010 442 5500
the economy. For enquiries relating to shares, shares
certified holders, share registers or general enquiries Email: info@zarx.co.za
contact Strate. Physical address: 2nd Floor, Jindal Africa Building,
22 Kildoon Rd,
Telephone: 011 759 5300 Bryanston, 2021
Fax: 011 759 5500 Website: www.zarx.co.za
Email: info@strate.co.za
Postal address: P.O. Box 209, Halfway
House, 1685
Physical address: The MARC, Tower 1, 129
Rivonia Rd, Sandown,
Sandton, 2196
Website: www.strate.co.za

158 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

 Call centre: 0861 662 837 or
PART 3: FINANCIAL SECTOR SMS ‘Help’ to 44786
OMBUDSMEN Fax: 086 674 7414
Email: ombud@creditombud.org.za
OFFICE OF THE PENSION FUNDS ADJUDICATOR Postal address: P.O. Box 805, Pinegowrie, 2123
(OPFA) Physical address: Fernridge Office Park, 5 Hunter
The PFA resolves complaints in order to uphold the Street, Ferndale, Randburg
integrity of the pension fund industry and to protect the Website: www.creditombud.org.za
interest of pension fund members. If you are unable to
resolve problems related to your pension, provident, OMBUDSMAN FOR LONG-TERM INSURANCE
preservation or retirement fund with your employer, you The Ombud resolves disputes between complainants
can lodge a complaint with the OPFA. and insurers arising from long-term insurance policies. If
you have complaints related to life cover, funeral policies
Sharecall: 086 066 2837 and other long-term insurance matters, contact the
Telephone: 012 748 4000 / 012 346 1738 Ombudsman.
Fax: 086 693 7472
Email: enquiries@pfa.org.za Sharecall: 0860 103 236
Postal address: P. O. Box 580, Menlyn 0063 Telephone: 021 657 5000
Physical address: 4th Floor, Riverwalk Office Park, Fax: 021 674 0951
Block A, 41 Matroosberg Road, Email: info@ombud.co.za
Ashlea Gardens, Pretoria Postal address: Private Bag X45, Claremont 7735
Website: www.pfa.org.za Physical address: Third Floor, Sunclare Building, 21
Dreyer Street, Claremont, Cape
OMBUD FOR FINANCIAL SERVICE PROVIDERS Town, 7700
(FAIS OMBUD) Website: www.ombud.co.za
The FAIS Ombud promotes consumer protection and
aims to enhance the integrity of the financial services OMBUDSMAN FOR SHORT-TERM INSURANCE
industry through resolving complaints impartially, (OSTI)
expeditiously and economically. If you have a OSTI provides consumers with a free dispute resolution
complaint about your financial advisor or financial services mechanism. If you have a dispute with members of the
provider, contact the FAIS Ombud. short-term insurance industry you can contact the OSTI.

Call centre: 086 066 3247 Call centre: 0860 726 890
Telephone: 012 762 5000 Telephone: 011 726 8900
Fax: 012 348 3447 Fax: 011 726 5501
Email: info@faisombud.co.za Email: info@osti.co.za
Postal address: P.O. Box 74751, Lynwood Ridge, Postal address: P.O. Box 32334, Braamfontein 2017
0040 Physical address: 1 Sturdee Avenue,
Physical address: 125 Dallas Avenue, Menlyn, 1st Floor, Block A, Rosebank,
Waterkloof Glen, Pretoria, Johannesburg, 2196
0010 Website: www.osti.co.za
Website: www.faisombud.co.za
NOT SURE IF YOU SHOULD CONTACT THE LONG-
CREDIT OMBUD OR SHORT-TERM INSURANCE OMBUDSMAN?
The Credit Ombud resolves complaints from consumers
and businesses that are negatively affected by credit Here is the central contact point for insurance related
bureau information or when a consumer has a dispute complaints
with a credit provider. For information on the credit
industry or to lodge a complaint against credit bureaux Sharecall: 0860 103 236/0860 726 890
or creditor providers, contact the Credit Ombud. Fax: 086 589 0696
Email: info@insuranceombudsman.co.za
Website: www.insuranceombudsman.co.za

A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING 159

 SOUTH AFRICAN SAVINGS INSTITUTE (SASI)
PART 4: FINANCIAL SECTOR The purpose of SASI is to develop a robust culture of
INDUSTRY ASSOCIATIONS saving in South Africa. If you want to learn more about
saving, contact SASI.
SOUTH AFRICAN INSURANCE ASSOCIATION
(SAIA) Telephone: 011 269 3683
SAIA represents the interests of the non-life insurance Fax: 086 552 7561
industry, encourages fair and ethical treatment of Email: info@savingsinstitute.co.za
customers of non-life insurance products and fights Physical address: 19 Fredman Drive, Esterhysen
insurance crime, especially insurance fraud. If you want House ,Sandton 2196
to verify if an insurance company is legitimate or if you Postal address: PO Box 252, Bramley 2018
want to learn more about non-life insurance, contact Website: www.savingsinstitute.co.za
SAIA.
ASSOCIATION FOR SAVINGS AND INVESTMENT
Telephone: 011 726 5381 SOUTH AFRICA (ASISA)
Fax: 086 758 4990 ASISA represents the savings, investment and
Email: info@saia.co.za insurance industry that contributes trillions of Rands
Postal address: P.O. Box 5098, Weltevredenpark, to South Africa’s economy and promotes a culture
Johannesburg, 1715 of savings and investment. If you want to learn more
Physical address: Ground Floor ,Willowbrook about saving, investing and insurance, contact ASISA.
House, Constantia Office Park,
C/O 14th Avenue &, Hendrik Telephone: 021 673 1620
Potgieter Rd, Weltevredenpark, Email: info@asisafoundation.org.za
Johannesburg, 1715 Physical address: 3rd Floor, Sandton Close 2, Block
Website: www.saia.co.za A, Norwich Close, Sandton, 2196
Postal address: P.O. Box 23525, Claremont 7735
NATIONAL STOKVEL ASSOCIATION OF SOUTH Website: www.asisa.org.za
AFRICA (NASASA)
NASASA registers and monitors stokvels across South THE FINANCIAL PLANNING INSTITUTE OF
Africa. It offers educational and information services to SOUTHERN AFRICA (FPI)
members. To check if a stokvel is registered, contact The FPI is a South African Qualifications Authority
NASASA. recognised professional body for financial planners in
South Africa. To become a member or find our more,
Telephone: 087 898 0987 contact the FPI.
Email: info@nasasa.co.za
Physical address: Kildrummy Office Park, Building Telephone: 011 470-6000
8 Glenfiddich, Witkoppen Road Email: info@fpi.co.za
& Umhlanga Avenue, Paulshof, Physical address: 84 Sophia Street, Fairland,
Sandton, 2191 Johannesburg, 0001
Website: www.nasasa.co.za Postal address: P.O. Box 6493, Weltevredenpark,
1715
SOUTH AFRICAN INSTITUTE OF STOCKBROKERS Website: https://fpi.co.za
(SAIS)
SASI is the industry and professional body for the South
African financial markets. If you want to make sure a
stockbroker has passed the SAIS exams, you can give
the institute a call or email them with your enquiry.

Telephone: 011 853 8702

Email: sais@sais.co.za
Postal address: Postnet Suite 86, Private Bag
10020, Edenvale, 1610
Physical address: 51 West Street, Houghton Estate,
Johannesburg
Website: www.sais.co.za

160 A BEGINNER, INTERMEDIATE AND ADVANCED LOOK AT INVESTING

THE SOUTH AFRICAN INDEPENDENT FINANCIAL
ADVISORS ASSOCIATION (SAIFAA)
PART 5: OTHER RELEVANT
The purpose of SAIDAA is to promote the value of REGULATORS AND GOVERNMENT
“independent financial advice” in a modern financial ENTITIES
services market, and the critical role of independent
advisors in delivering this advice, to the media/regulator/ NATIONAL CONSUMER COMMISSION (NCC)
public at large. To become a member or make further The NCC regulates the interaction between consumers
enquiries contact SAIFAA. and businesses in South Africa and wants to ensure
the economic welfare of consumers. If your consumer
Telephone: 011 470-6000 rights in the purchasing of goods and services were not
Email: info@saifaa.co.za respected by suppliers as per the Consumer Protection
Bertie le Roux: 082 443 0509 Act (CPA), contact the NCC.
(Bertie@aliberti.co.za)
Johann Kruger: 083 453 3224 Telephone: 012 428 7000
(johann@orenco.co.za) Fax: 086 758 4990
Website: https://saifaa.co.za Email: Enquiries@thencc.org.za
complaints@thencc.org.za
FINANCIAL INTERMEDIARIES ASSOCIATION OF
SOUTHERN AFRICA (FIA) If you have complaints about specific sectors, you can use
The FIA is a trade association for intermediaries and these email addresses: Timeshares: timeshareinquiry@
strives to protect and develop the professional service of thencc.org.za
its members and their employees so that consumers can
benefit from the value of advice, risk management and Legal Advisory: advisory@thencc.org.za
product fulfilment in today’s fast-paced world. To become Postal address: P.O. Box 36628, Menlo Park, 0102
a member or make further enquiries contact the FIA. Physical address: Building C – South African Bureau
of Standards Campus, 1 Dr
Telephone: 012 665 0085 Lategan Rd, Groenkloof, Pretoria,
Fax: 012 665 0534 0027
Email: questions@fia.org.za Website: www.thencc.gov.za
Physical address: Corporate Corner Unit No 9, Cnr
John Vorster & Marco Polo Drive, SOUTH AFRICAN REVENUE SERVICE (SARS)
Centurion, Gauteng If you have a query or a question regarding personal or
Postal address: P O Box 11901, Centurion, 0046 business tax, contact SARS.
Website H
Contact centre: 0800 00 7277
Telephone: 012 422 4000
Email: contactus@sars.gov.za
Postal address: Private Bag X923, Pretoria 0001
Physical address: Lehae La Sars, 299 Bronkhorst
Street, Nieuw Muckleneuk,
Pretoria, 0181
Website: www.sars.gov.za

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