Investments – explained (well partially at least)

1. Investments – explained (well partially at least) A presentation to Lifehouse Church by Kerrin Lynch August 2012

2. Agenda Why do we invest Considerations in investing Investment premia – a different way of thinking about investments Investment types „An investor who knows all the answers, didn‘t really understand the questions to begin with.“ - Unknown

3. Why do we invest? • As a consumer, we have the choice to spend now or save to spend at a later stage. • Live in a consumer culture (spend now, pay later!). • Save for various reasons: • Holidays • Cars / other purchases • Retirement – this is important! • Unforeseen expenditure • To leave a financial legacy to our children / grandchildren • But which is the appropriate vehicle to save in?

4. Why do we invest? • Choose the most risky / least risky investment from the following: • Shares on the stock market • A Government-issued bond • Bank account • Your house • Your mate’s start-up IT company • The real question is: How do you define risk? • Decrease in value of your investment? • Decrease in value of your investment ? • Losing all your money? • Most important concept in investing:

5. Why do we invest?

6. Considerations in investing • What should we take into account when we invest? • Reward – expected return from the investment • Risk – defined differently – security / probability of low or negative returns • Liabilities to be met – (A = O + L) • Term of the investment • Expenses associated with investing • Taxation regime – • income tax; and • capital gains tax • Diversification of investments (local / international / sector / companies / banks)

7. Investment premia • Consider investments differently. In making a particular investment, what compensation (premium) am I trying to get out of the investment? • Allows you to make comparisons of different investment types to see if the compensation is worthwhile. • Premium examples • Term Premium / Illiquidity Premium • Credit Premium • Inflation Risk Premium • Equity Risk Premium • Rand Premium • Social Premium

8. Investment Types • First some background information – Let us consider the financial structure of a typical company • Ranked from highest to lowest risk • Investors demand higher return from higher risk investment

9. Investment Types • Financial products / investment opportunities available in many forms • Bonds (issued by Companies / Governments / Banks) • Equity • Property • Cash • Unit Trusts • Retirement Annuities • Property • Your mortgage • Derivatives - Options / Swaps / Futures • Art / Gold Coins • Others? • Let’s look at a few in terms of their premia / risks / rewards / other considerations

10. Investment Types • Property • Rewards • Capital Growth / rental income • Risks • Lack of diversification / Land grabs • Expenses • Insurances / Costs of buying & selling / Maintenance • Taxation • CGT / Income tax • Premia • Illiquidity / Term

11. Investment Types • Equity • Rewards • Capital Growth / dividend income • Risks • Market risks / Company mis-management • Expenses • Unit trust costs / Satrix fees / Broker costs • Taxation • CGT / dividend tax • Premia • Equity risk

12. Investment Types • Gold Coin • Rewards • Capital Growth • Risks • Gold price / buyer demand • Expenses • Selling costs • Taxation • Capital Gains Tax? • Premia • Term premium / Gold Price premium

13. Kerrin Lynch • B.Sc. F.F.A. F.A.S.S.A. • 1st floor, 44 Melrose Boulevard, Melrose Arch, 2196 • Telephone 011 912 9134 • Kerrin.lynch@towerswatson.com