Situations Affected By Financial Trends

Investments

Money that is put away into a savings scheme so that it can:

• Grow and become more than the original amount
• Earn interest so that the money grows

An investment can be for a:

• Short term = less than 6 months
• Medium term = 6 to 36 months
• Long term = more than 36 months

The basic principle for any investment is: “the higher the return, the higher the risk’

What this means is that the more interest they promise you on an investment, the higher the risk is for you (the investor) to invest your money.

A good example of a risky investment would be if you invest money in the stock market i.e. buying and selling shares. If you do not know what is going on, when to buy, when to sell, you could end up losing all your money. However, if you know what is going on in the stock market and you can ‘read between the lines’, you will make much more money than you invested.

Safer investments usually bear a lower interest rate. A fixed deposit is a good example of a safe investment. You know your money is going nowhere and it will still be there at the end of your investment period

Unit trusts are less risky, but they are a long-term investment. Unit trusts are offered by financial institutions that collect amounts of money from many people. These institutions employ people who know the stock market very well and they are called fund managers. These fund managers buy blue-chip (safe and stable) shares with this collective amount of money. The value of the shares is then equally distributed amongst the initial payers. When you ‘sell’ your unit trust back to the financial institution, your return on investment includes dividends and interest.

Dividends are money that is made from buying and selling the shares and interest is there turn on the money that you invested.

Unit trusts can be up the one day and down the next, so you still need to be very careful about when you buy or sell. The rule is to buy when the stock market is down and sell when it is up. Timing is very important.

Stokvels

A stokvel is usually when a number of people get together and ‘club’ together their money. Every member of the stokvel receives the money at a particular time.

Because a number of people contribute, the money and interest accumulate more rapidly than if you were saving on your own.

Inflation

Click here to view a video that explains what inflation is.

Inflation is the average change in prices over a period of time. We often hear what the inflation rate is when we listen to financial reports over the radio.

If our inflation rate is 15%, then it means that this time last year something that cost R100-00 will now cost you R100-00+ 15%= R115-00.

Inflation can be a vicious wealth killer.

Click here to view a video that explains what the impact of inflation is.

Example:

Piet works at Hummingbird Milling. Piet wastes a lot of mealie meal every day, because he is not interested in his work. The company loses money. At the end of the year, they take a big knock for all Piet’s wasting of mealie meal. This means less profit. Less profit means less money in the bank.

Less money in the bank means less increase for staff. Less increase for staff means less comfort at home. Less comfort at home makes more miserable people. More miserable people become unhappier at work. Unhappy workers become less interested in what they do. Less interest becomes more waste.

Hummingbird Milling knows all this and decides to put up the prices of their mealie meal to compensate for Piet’s lack of interest. They put the mealie meal price up by R1-00. The stores that sell mealie meal to the public have to put up their prices and they do so by making mealie meal R2-00 more expensive.

If this happens every day and everywhere, we will soon not be able to afford mealie meal, just because of carelessness.

Click here to view a video that explains what the causes of an economic recession is.