Finding the best investments involves looking at a number of different, in particular the best investment for someone isn’t always best for someone else as it depends on the circumstances of the individual who is investing. Arguably, safe investments are ventures that pose a minimum risk on capital and promise fair returns over the investment period. For instance, putting money in gold or other safe havens during economic turbulence can be considered a safe investment. A safe investment however isn’t necessarily the best one for someone who is looking for high risk and high returns. So what else could be the best investment? Read on as we look into different best investments in South Africa.
Understanding High Return Low-Risk Investment
Discussions around returns are meaningless if there is no clear understanding of risk. However, it is difficult to figure out where the risk is. This is even more challenging for new investors who have difficulty differentiating high risk from low risk.
The concept of risk is yet to be fully understood despite its significance in investment. Many new investors think that risk is a well-defined, quantifiable concept. However, this is not true as there is no consensus on risk and how to measure it. Instead, most business people localize their approach to risk and develop creative ideas when solving problems surrounding this fundamental idea.
Understanding risk is important when learning how to invest money. It is especially true when you are looking for low-risk investments. Essentially, low-risk investing is having less at stake in investment opportunities – in terms of capital and the consequence, an investment has on your portfolio. Consequently, there is less to earn with regard to long-term benefits and potential gains.
Low-risk investments in South Africa also mean you protect your investments against potential loss and ensure the occurrence of a loss on your portfolio won’t be devastating. Therefore, as an investor defining risk based on loss of capital or measuring progress against expectation makes it easier to determine the nature of risk your business is likely to experience. You’ll also be able to classify types of risks in your business.
With this analogy, low-risk high-yield investments offer relatively higher returns with little potential for capital loss. Typically, the best investments of this nature are short-term. Here are 6 best and safest investments in South Africa.
6 Best Investments in South Africa
Join the best investors in South Africa and channel your cash to the best place to invest money right now. Here are 6 best investments for South Africa 2023. They include the best companies to invest in South Africa and other investment opportunities to put your money in for a return.
High-yielding fixed deposit savings are some of the best safe investments. This investment works best if you have enough to make it big at a decent interest rate. Apart from the profit, the other advantage of fixed deposit savings is that banks are regulated by the Financial Sector Conduct Authority (FSCA). The regulator ensures that banks are insured against customer losses from their bank accounts from the bank’s bankruptcy. Look at our list of the top savings accounts to help you decide.
Short Term Certificates of Deposit
Certificates of Deposit are also savings investments. However, unlike savings accounts, they do not allow withdrawal before the date of maturity. However, there is an option to do so at a cost/penalty. Short-term Certificates of Deposit have high-interest rates. On the opposite end, though, they typically have a maturity period of 3 months to 9 months. The high-interest rate makes up for the length of time you will have to wait to get any payment. Short-term Certificates of Deposits are made available by most banks in South Africa.
Government of South Africa Treasury Bills
Treasury bills are similar to bonds in that they are debt securities. However, they are short-term. They take from 1 day to 12 months to mature. Bonds, even though there are short-term and long-term kinds, typically take more than 1 year to mature. Long-term bonds even take more than 10 years to mature.
Treasury Bills (T-Bills) are normally made available for purchase on a weekly basis. They are considered safe investments because they are backed by the government. T-Bills are issued by the National Treasury through the South African Reserve Bank (SARB). All applications are therefore submitted to SARB. SARB then issues the bills through an auction which is only attended by those who qualify.
The auction is an internet system called Monet Market Internet System (MMIS). Bids are only submitted through it. There is leeway, however, for bidders who are unable to submit their bids using MMIS to use telephonic bids, which they have to follow up with a fax or swift confirmation. SARB then posts invitations to bid on its official website. Auction results will show successful bidders. They are announced on SARB’s website as well as on electronic news platforms. Successful bidders are allotted Treasury Bills. Ultimately, the payment due from a Treasury Bill is also paid by the South African Reserve Bank (SARB) on behalf of the National Treasury.
RSA Retail Savings Bonds
A bond is a debt security that governments or companies use to get funds. The bond issuer gives the bond buyer a bond certificate that serves as an IOU. The buyer then gets paid the amount equivalent to the face value of the bond when it matures. The profit earned on bond investments is the interest. The interest is calculated as a percentage of the face value of the bond. These payments can be annual, semi-annual, or even quarterly. It should be noted, though, that these features of a bond are just the fundamental ones. Depending on the terms and the type, bonds can be quite different from each other.
The RSA Retail Savings Bonds was launched in 2004 by the National Treasury. The South African government avails these bonds to give citizens a safe and secure investment option. Apart from that, through the bonds, they also aim to make the levels of financial and economic literacy among South African citizens deeper. The RSA Retail Savings Bonds have no fees associated with their purchases. They are available to all citizens and are fully backed by the Government of South Africa.
There are two types of RSA Retail Savings Bonds. They can either be fixed-rate interest bonds or inflation-linked bonds. The best option for an assured profit is the fixed interest option. The inflation-linked option can be profitable for experienced investors who forecast rises and falls in inflation levels. In order to qualify, you must meet two requirements. You must have a valid ID number and an RSA bank account. Applications can be made online on the official RSA Retail Bonds website, at a South African Post Office branch, at the National Treasury office, or through a phone call to the National Treasury Helpline on 012 315 5888.
As opposed to government bonds which are issued by the government, corporate bonds are issued by companies and organizations. According to cbonds.com, the South African corporate bond market is “dominated by floating rate instruments.” Floating rate instruments go by that name because they give bondholders variable interest rates. The site goes on to say that more than 71% of these instruments are traded on the corporate bond market.
The best route for an investor looking for a safe investment in corporate bonds is to go with short-term fixed-rate corporate bonds. This is because corporate bond investors are exposed to potential loss from two risks, interest rate risk and default risk. Interest rates earned from corporate investments are usually highly volatile. Keeping an open position for a long time increases the risk that you could see a loss when the company or organization is going through a rough patch.
Default risk is the chance that a corporate bond issuer could go without paying interest or face value to the bond buyer according to its terms. Corporate bonds can be bought on the Johannesburg Stock Exchange (JSE) or through a bond broker.
Money Market Funds
Money Market Funds are shares in a basket of investments that have a short-term to maturity and are managed by a financial expert. They are a kind of mutual fund. Money market funds give small interest payouts, which are usually discharged monthly. They are able to do so because they are very liquid. This liquidity comes from their investment in short-term securities. For example, they invest in Treasury Bills, repurchase agreements, and commercial papers. All their investments mature in less than one year. Money market funds are available for purchase on the JSE and through contact on designated websites. For instance, Allan Gray Money Market Fund is available on their website.
If you are looking for the best low-risk investments in South Africa, the 6 above should be on your list for consideration. You should weigh them using their liquidity, interest rates, period of maturity, and their security to see which ones tick the right boxes for your convenience.