Key investment terms every South African should know
By Maria Smit*
Financial education is one of the most powerful gifts you can give yourself. In a world filled with jargon, fine print, and complex products, it can be easy to feel left out or unsure. But the truth is, you don’t need a finance degree to understand the basics.
Everyone has the ability – and the right – to learn how their money works.
Understanding common financial terms is a great place to start. It’s the foundation for making better choices, asking the right questions, and feeling more confident in conversations about your financial future.
My hope is that this information gives you a solid foundation to build from so that you can take control of your personal financial journey.
What is an asset?
An asset is anything you own that can grow in value or generate income – like shares, property, or bonds.
What is a portfolio?
Your portfolio is the total collection of all your investments. It reflects your overall strategy and financial goals.
What does diversification mean?
Diversification means spreading your money across different investments to reduce your overall risk. If one performs badly, others may balance it out. Think of it as not keeping all your eggs in one basket.
What is liquidity?
Liquidity is how quickly and easily you can turn an investment into cash without losing value.
What’s the trade-off between risk and return?
Generally, the higher the potential return, the greater the risk. Safer options tend to grow more slowly.
Equities (shares): owning a piece of a company
Shares represent partial ownership in a listed company. You can earn dividends and benefit from growth in the share price.
Bonds: lending your money
Bonds are are effectively loans you give to the government or a company in return for regular interest payments.
Unit trusts: investing as a group
A unit trust pools your money with that of other investors. A fund manager decides where to invest it, typically in a mix of assets.
ETFs: tracking the market
Exchange-traded funds (ETFs) also pool money and invest in an index, like the JSE Top 40. You buy them like shares.
TFSA: a tax-free savings account
A TFSA lets you earn tax-free growth, interest, and dividends – up to annual and lifetime limits.
Living annuity: retirement with flexibility
A living annuity lets you draw income during retirement while keeping the rest of your money invested.
Guaranteed annuity: income for life
This product gives you a fixed monthly income for the rest of your life, no matter what happens in the markets.
TER: total expense ratio
This shows the percentage of your investment used for admin and management costs (excluding trading fees).
TIC: total investment charge
TIC includes the TER plus all transaction costs involved in managing your investment.
EAC: effective annual cost
EAC gives you a full picture of what your investment costs – including advice, admin, and management – expressed as an annual percentage.
Why fees matter:
Even a 1% fee difference each year can dramatically affect your final return over decades. Always ask your adviser what fees you’re paying and what you’re getting in return.
Capital gain or loss: your profit or loss
When you sell an investment, the difference between what you paid and what you receive is your capital gain (or loss).
Dividend yield: income from shares
This is the income you get from dividends, shown as a percentage of the share’s price.
Total return: the full picture
Your total return includes capital gains and any income earned from the investment.
CAGR: measuring long-term growth
The compound annual growth rate (CAGR) shows how much your investment has grown on average each year.
Volatility: ups and downs
Volatility is how much an investment’s value moves up and down over time. More volatility means more uncertainty.
Inflation risk: losing buying power
If your investment doesn’t grow faster than inflation, its real-world value declines over time.
Market risk: reacting to global shifts
Market risk is the chance that your investment will lose value due to changes in the broader economy or markets.
Credit risk: lending isn’t risk-free
This is the risk that the issuer of a bond won’t be able to repay the money they owe you.
Hedging: protecting your position
Hedging involves using strategies or financial instruments to reduce the risk of loss.
Capital gains tax (CGT): tax on profit
You pay CGT when you sell certain assets for a profit.
Dividend withholding tax (DWT): 20% on payouts
This tax is taken off dividends paid from shares.
Estate duty: tax on your legacy
When you pass away, your estate may be taxed on assets over R3.5 million.
Section 4Q deduction: tax-free transfers to your spouse
This allows you to pass assets to your spouse without paying estate duty.
Offshore allowance: invest beyond borders
You can invest R1 million offshore annually without approval, and up to R10 million with SARS and SARB approval.
Bull market: prices are rising
A bull market is a period when prices in the market are increasing steadily.
Bear market: prices are falling
A bear market is when prices are consistently declining over time.
Blue chip shares: big, trusted companies
These are shares in large, stable companies like Naspers or Anglo American.
Index: a market benchmark
An index is a group of selected shares used to represent overall market performance (e.g., JSE All Share Index).
IPO: a company’s first public share sale
An initial public offering (IPO) is when a company offers shares to the public for the first time.
Nominal growth: headline numbers
This is the increase in your investment’s value before adjusting for inflation.
Real growth: what you actually gain
This is the growth after accounting for inflation – your true increase in purchasing power.
Example:
If your investment grows 10% but inflation is 6%, your real return is about 4%.
Formula: Real growth = Nominal growth − Inflation rate
Final thought
Financial confidence comes from understanding the basics. Learning these terms puts you in control and helps you ask the right questions. You don’t need to know everything – but knowing what to ask is a great start.
* Maria Smit CFP® professional is an advisor at Brenthurst Pretoria maria@brenthurstwealth.co.za
