Investment 101


So you’ve been thinking about securing your family’s financial future, and how to make your hardearned money work even harder for you…like millions of others, you’ve decided that becoming an investor makes better financial sense than leaving your money lying dormant in a traditional savings account which tend to provide negative returns.

But as with every new venture, there are a lot of questions to consider. What are your options? Which investment strategy best suits your short, medium and long-term needs, plans and goals?
Perhaps you’re excited by the idea of owning shares in some of the best-known global brands, in which case you will be considering the equities market. Here are some real-life examples of the power of investing in global giants. FaceBook went public in 2012 with a share price of $26. 81, eight years later, on September 10, 2020 one share of FaceBook traded for $275.00. Google, now (Alphabet) Googl, went public on August 19, 2004, with a hefty price of $85.00 per share; however 16 years later, one share of Google traded for $1,528.00 – so had you invested then, you would have enjoyed a growth of more than 1,600 per cent on your initial investment.

Or you might choose to invest in a bond, which means you’ll lend money to a business or to the government, with a reasonable degree of certainty that they won’t default on your loan, and that your principal will be returned after a healthy period of collecting interest payments.
Investing represents many new opportunities to manage and grow your money, but as with most things in life, it does carry some risks.

Each dollar that you invest is subject to market forces beyond your control, including the experience and integrity of the company or individual that you give your funds, consumer and market trends, and even changes in government can affect how your investment performs.

Whatever your investment strategy, initially, it’ll almost certainly appear daunting, especially as there will be so many new terms, concepts, measures, and ratios to learn, but in order to make the best choices, it’s essential that you understand the basic language of investment.

Becoming a savvy and successful investor is a life time effort, and you never stop learning as new products and services come on the market, however, there are some fundamental principles that never change.
Below is a list of 10 Investment Terms:

ANNUAL GENERAL MEETING (AGM) — for publicly listed companies, the business part of the AGM is fairly straightforward and is a lot like back to school night for parents and teachers. At the AGM the investor gets to meet the directors and upper management of the company. They also have the opportunity to vote for new directors, approve new auditors, and vote for dividend payments.

However, probably the most important part of the meeting is what takes place before, as the company prepares an annual report (AR) that provides a clear review of the prior year’s activities. It provides investors with insight into business strategy and execution, and detailed explanation for the outcomes of business operations over the past year. Information in the annual report provides the meat for the dry business of the AGM.

ASSET — an asset is financial industry speak for anything of value that is owned by a business or individual. Assets can be tangible or intangible and include cash, bonds, buildings, equipment, inventory, patents trademarks, and anything else that can be turned into cash.

BALANCE SHEET — is also known as the Statement of Financial Condition and is in essence a report card on the financial health of a business for the period under review. The balance sheet reports on the components and breakdown of the assets and liabilities, and shows equity capitalization, shareholders equity, and liabilities – including receivables – and long and short term debt. This information provides a bottom line number that represents the company’s net worth or negative net worth by subtracting liabilities from assets. Investors need a great deal more information to fully understand a company’s financial status, but the balance sheet is the best place to begin.

CAPITAL — the amount of money shareholders have invested in a company and which it has to fund its operations. Capital includes cash, assets and investments. In a business operations capital can come from debt or equity financing activities.

DEBT VS. EQUITY — these are two of the most important terms to understand in finance. Debt is a loan that must be repaid by the borrower. Businesses and governments borrow money from the public by issuing bonds and short term notes on which they make interest payments for the duration of the loan, and return the principal at the end of the loan period. Equity represents the amount of money that the owners (including shareholders) have invested in the company. Equity investors share in both the profits and have the right to vote on decisions made by the company. However, they also share in any losses in the company and in the event of a business failure risk losing all of their investments.

EARNINGS — this is one of the most important measures of the profitability of a company. Earnings reports are usually provided quarterly by management, and provide information on the amount of earnings/revenue for the period under review. Earnings per share is very important for investors as it measures how much money the company made per unit/share that they have invested in the company. The formula for calculating this number is calculated by dividing the company’s total earnings by the number of issued shares.

INITIAL PUBLIC OFFERING — (IPO) refers to the first time a company offers its shares to the public, usually by selling them on a stock exchange. By the time a company is willing to sell a part of the business, the original owners would have invested a significant amount of cash and sweat equity in starting the company. An IPO provides additional capital to grow the business and also an opportunity for early investors e.g. angel investors and venture capitalists to exit, by selling part of or their entire share holding to the public. IPOs often provide ground floor opportunities to own a piece of a business that might become prohibitively expensive if the business grows rapidly. For example, FaceBook had been in operation since 2003 before going public in 2012.

PORTFOLIO — The term portfolio is widely used in the investment field and in the simplest terms refers to a collection of financial assets or item (s) that can be converted into a cash value. Portfolio relates to each individual’s holdings, as well as the portfolio of investments that many of us buy into when we purchase shares in a mutual fund or a unit trust. It includes stocks, bonds, commodities, cash, real estate, real estate, and even art and other tangible and intangible assets such as patents and trademarks.
RETURN ON INVESTMENT (ROI) — is a way to objectively measure how much money your initial investment has earned. ROI is also used to evaluate whether or not to purchase a business or even a real estate transaction. i.e. will my mortgage payment be more or less than the income ( rent), that I can earn from a piece of investment property. The formula is ROI=Net profit/Total Investment.

UNIT TRUST VS. MUTUAL FUNDS — Both are investment vehicles that pool funds from different people and invest that money in a range of assets such as stocks or bonds. The main benefit of these pooled funds is that they allow individual investors to access investments they could not otherwise afford. For example, a single share of Google, (Alphabet) Googl, traded for $1,528.00 on September 10th, few of us could afford even one share of the individual stock, but on the same day, for $82.00, a savvy investor could purchase a share of the Vanguard Total Stock Market Index Fund that invests in Google.

Both Unit Trusts and Mutual Funds offer the following benefits – diversification, liquidity, (you can cash in your investment at any time), exposure to a greater diversity of assets than could be accessed by a single investor. Both are professionally managed and must abide by stringent rules set by regulatory authorities

The main difference is how they are structured and managed, A Unit trust is owned by in the investors, who elect trustees to make decisions on their behalf. Mutual Funds are registered as an investment company and investors own the value of their shares. Unit Trusts and Mutual funds trade throughout the day and their relative value changes with the market fluctuations. Both are required to value their portfolio one per day, with Mutual Funds being mandated to do so at the end of the trading day. This valuation provides a Net Asset value, which forms the valuation for purchases or cash out value. Unit Trust purchase price also fluctuates, and the buy in or cash out price is set at the time of your transaction. Investors pay a fee to access these funds.


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