According to David Christie, Head of Distribution for Southern Africa at Ashburton, there are numerous options available to South African investors.

"These options include investing in shares through group funds, the purchasing of bonds and offshore investments. The type of investment best for the individual will depend on their risk profile as well as their circumstances, such as the amount available for investment and the structure of their assets."

Calculated risks

Christie explains further: "The risk profile essentially describes the individual’s willingness to take a calculated chance on an investment; the concepts of risk and reward are closely related, as a higher risk investment often, but not always, delivers a potentially higher reward."

In terms of the circumstances of the investor, he says liquidity is an important concept and may be linked to asset structure. "Investors who regularly need cash unpredictably, for example, cannot afford to have their money tied up in longer-term investments as this might put a strain on their cash flow."

You need to discuss which investment option is right for you with your financial adviser, taking all these factors into account. The success of your adviser depends on his ability to help you make your money work better for you. In so doing, the adviser should help you to make sound investment decisions in the right instruments.

Christie sheds some insight on some of the available investment options:

The stock market

It's quite a challenge for the first-time investor to get into the stock market. What is the stock market? Well, quite simply it provides facilities for stock brokers and traders to trade company stocks and other securities. 'Stocks' are in effect shares in a company — when the company performs well, the value of those shares go up to the benefit of the investors.

As such, it is essential to invest in the right companies to ensure a return on investment.

Says Christie, "There are numerous options and instruments which are related to the stock market which, if used appropriately, can help investors to get the most from their investments. Given the complexity of the stock market, the advice and guidance of a professional investment adviser is useful in assisting particularly those investors who are new to the market."

Offshore investments

Recent changes to legislation governing investments has made offshore investments possible and this option allows your money to work for you in foreign markets. For all intents and purposes, offshore investments is a practical component of a balanced investment portfolio.

Christie says offshore investing is a simple matter of diversification which gives investors the opportunity to benefit from markets around the world. "With increased exposure, the risk of volatility is reduced," he notes.

While it is difficult to estimate what proportion of any given portfolio should be placed offshore, Christie puts a fair estimate at around 30 percent, but this does however differ from investor to investor, based on individual risk profiles.

Global economic conditions also influence the chosen location for offshore investment. Emerging economies tend to produce commodities, while developed ones tend to consume commodities.

China, for example, is a 'commodities sucker' given this market’s propensity to import raw materials. "When the economy takes a dip, the emerging markets tend to get hit the hardest with the resultant sell-off," he adds.

Bonds

A bond is just a loan but in the form of a security. "When you buy a bond, you are in effect lending someone money, be it a government or an organisation. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures," says Christie.

Bonds are bought and traded mostly by institutions like pension funds, insurance companies and banks; but it is also now relatively available to individuals. If you want to buy bonds, you can either do so through bond funds, or you can buy government retail bonds (see the RSA Retail Savings Bonds' homepage).

"Since bonds typically have a predictable stream of payments and repayment of principal, many people invest in them to preserve and increase their capital or to receive dependable interest income," he adds.

There are several types of bonds available and your financial advisor will help choose those which are most appropriate for your portfolio.

Finally, Christie notes that virtually all investments have some degree of risk. "When investing, it’s important to remember that an investment’s return is linked to its risk: the higher the return, the higher the risk. Conversely, relatively safe investments offer relatively lower returns," he says.