Is Investing all about “Equities” – Fixed Income Investing

Written by NMK Africa

July 18, 2019

Oft times we are faced with the daunting task of investing money. Some quickly presume in order to make money you’ve got to buy stocks which are primarily on the stock exchange. Buying stocks has become an easy task with many banks offering solutions linked to your personal accounts. The challenge comes when you want to choose the right stock that will produce for you the desired performance or returns that you want. What people have often neglected to do in their investment’s assessment is to fully diagnose the investment universe. The equity market in South Africa is certainly not as glamorous and as rewarding as the equity markets in other developed nations. Although there are over 160 companies to choose from there’s still a high degree of limited choices as people tend to place most of their investments into blue chips (larger companies).

Stock Market vs Bond Market?

Many people are unaware of how the bond market works when it comes to investments. A company consists of two funding sources which are either equity or debt. Debt investors give the company capital and in turn expect the company to pay them back the money with interest. Equity investors give the company capital in exchange for share certificates and a sharing in the company’s profits. Other investors expect the company to grow and will sell part of the growth of the company as payment for their investment.

The graph below shows the performance of the Bond and Equity market in South Africa. What we notice is that over the past 5 years the Bond market has been producing higher returns than the Equity market in South Africa. This is historical it does not mean it will persist in the future but it’s a clear sign of an alternative place to invest your money in other than equities.

Returns as at 30 June 2019, Source: ProfileData

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