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Investing 101: We discuss inflation busters “property” and “equity”

Also read the following related article:

* Investing 101: What does “asset class” mean?

In a previous article we discussed the different asset classes. Specifically, we looked at cash and bonds. In this article we will look at property and equity.

Property

You can invest in property by buying a physical property, either residential (i.e. a house or flat) or commercial (e.g. an office building).

The return on investment comes in the form of rental income and capital appreciation.

You can also invest in property indirectly through, for instance, property unit trusts. In a previous article we looked at these in more detail.

Property investment is seen as more risky than cash and bonds, but less risky than equity although there are several factors that influence risk; this is only a general rule.

Equity

Equity investments offer investors part ownership in listed companies on the Johannesburg Stock Exchange.

Equity is seen as the most risky asset class which also means investors can expect the highest return from this asset class over the long term.

Returns from equity take the form of dividends and capital gains.

Dividends are paid to shareholders from company profits. Capital gains refer to the increase in the share price.

Risk profile

Fund managers can incorporate one or more of these asset classes to achieve different expected growth outcomes at various levels of risk.

Equity funds, for instance, invest in only equity while property funds invest in property only.

Balanced funds generally invest in all four asset classes. This means that investors can have a portfolio of different types of funds, or they can invest in funds that already diversify over all the asset classes.

This is just a basic explanation of the different asset classes and care should be taken before investing in any specific fund.

Claude Hannah is a financial planner for Venn-Sure Consulting. He completed a degree in Financial Risk Management from the University of Stellenbosch in 2006 as well as a post graduate diploma in Financial Planning. Claude helps to organise and simplify the often complicated and busy financial lives of his clients. He takes great pride in providing the highest level of service to help his clients build and protect their wealth.For more information, email him (claude.hannah@liblink.co.za) to arrange for a free consultation.

Also read the following related article:

* Investing 101: What does “asset class” mean?

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