What is a Risk-Free Investment?
A risk-free investment is an investment that promises a guaranteed return with no possibility of losing the original amount you invested. Essentially, it’s like a safe bet where you know you will earn something, even if it’s not a high return. These types of investments are considered to be the safest because they are backed by a reliable entity.
Key Features of Risk-Free Investments:
Guaranteed Return: The primary benefit of a risk-free investment is that you know exactly what you will get back, with no fluctuation. Low
Returns: Because of their guaranteed nature, the returns on these investments tend to be lower compared to riskier options.
Backed by a Reliable Source: These investments are usually backed by government institutions or large, stable companies.
Examples of Risk-Free Investments in South Africa
Let’s take a look at a few examples that South Africans can consider when thinking about risk-free investments:
1. Government Bonds
When you buy a bond from the South African government, you're essentially lending money to the government, and they promise to pay you back with interest. The South African Reserve Bank (SARB) often issues these bonds, making them one of the most trusted forms of risk-free investment.
The RSA Retail Savings Bonds are available to South African citizens and offer fixed interest rates, which can be a great option if you're looking for a low-risk way to invest your money. Even in tough economic times, the government is highly unlikely to default on these bonds, which makes them a great option for people seeking security.
2. Fixed Deposits
Fixed deposits are another example of a risk-free investment in South Africa. A fixed deposit is a type of savings account where you deposit money for a set period, and the bank pays you interest. The principal (the money you originally invested) is guaranteed, and the bank offers you a fixed interest rate over the term of the deposit.
Banks like First National Bank (FNB) or Standard Bank offer fixed deposit accounts where you can lock away your savings for 6 months, 1 year, or longer, earning a fixed return. The longer the deposit term, the higher the interest rate you’ll generally earn.
3. Money Market Funds
Money market funds are low-risk investments that pool together funds from various investors to invest in short-term debt instruments like Treasury bills. In South Africa, money market funds are often offered by asset management companies like Allan Gray or Investec.
For South African investors, money market funds are ideal if you're looking for a safe, short-term investment with relatively better returns than a savings account. These funds invest in highly liquid and low-risk assets, making them an attractive choice for risk-averse investors.
Why Risk-Free Investments Are Attractive
Security and Peace of Mind: Investors who are averse to risk or nearing retirement prefer these investments for the certainty they offer.
Predictable Returns: Knowing how much you'll earn and when makes risk-free investments appealing to people who need a steady income stream.
Hedge Against Inflation: Some government bonds or fixed deposits provide a higher return than inflation, which can help preserve the purchasing power of your money. Common
Problems and Solutions
While risk-free investments may sound like a perfect option, they’re not without their downsides.
Problem 1: Low Returns
The main drawback of risk-free investments is the relatively low return. While your principal is safe, the return on investment (ROI) may not outpace inflation, meaning your money could lose value over time.
Solution:
Consider diversifying your portfolio by combining risk-free investments with a small portion of higher-risk investments (e.g., stocks or ETFs) to potentially boost returns. Explore inflation-linked bonds, which are designed to help protect against inflation by offering returns that adjust with the inflation rate.
Problem 2: Long Investment Terms
Many risk-free investment options, like government bonds or fixed deposits, often come with long terms, meaning you may not have access to your money until the investment matures.
Solution:
Look for liquid investment options, like money market funds, which provide higher liquidity, allowing you to access your funds if needed. If you're using fixed deposits, try laddering them - this means you invest in several deposits with different maturity dates so you can access some of your funds periodically.
Problem 3: Risk of Currency Depreciation
For South African investors, the value of the Rand can be unpredictable, which can affect the return on certain investments, especially if you’re investing in international markets or foreign-denominated assets.
Solution:
Consider investing in Rand-denominated assets or currency-hedged investments to mitigate the impact of currency fluctuations. Diversifying your investment portfolio by including a mix of domestic and international investments can help spread out risk.
Risk-free investments are an excellent option for South African investors who prioritize security and want guaranteed returns. While the returns may not be as high as riskier investments, these options offer peace of mind and help preserve your principal. Government bonds, fixed deposits, and money market funds are some of the top choices for risk-free investments in South Africa.
However, it's important to weigh the downsides, such as low returns and long investment terms, and consider strategies like diversification and currency-hedging to optimize your financial situation. By understanding the concept of risk-free investments and applying the right strategies, you can ensure that your money works for you while keeping it safe.
Questions after the interview:
At the end of an interview there is usually an opportunity where you can ask any questions you might have. This is a great opportunity to show the interviewer that you are interested in the position as well as the company. It is a good idea to prepare a few questions before the interview – this can be done while you are doing research on the company.
Your questions should show the interviewer that you are a good candidate for the position. Try and avoid questions that are based on your personal needs and preferences, for instance:
- How much leave will I get in a year?
- Will I be considered for promotion in my first year?
- When will I get an increase?
- What time can I leave in the afternoon?
These questions are inappropriate at this stage and will probably raise concerns on the side of the interviewer. Should you be the successful candidate then all these questions will be answered in your letter of appointment so don’t waste this opportunity by asking these basic questions.
If the position is an entry level job or very junior then you are welcome to ask questions in line with the position, for instance:
- Why did the previous person leave the position?
- What would the successful person be tasked to do in a typical day?
- How does this position fit into the department and / or company?
- Could you explain the company structure to me?
- Is there any further education assistance or support?
If the position is more senior then you can prepare question around the following themes:
- current issues that will face the successful candidate;
- inter-personal challenges in the department;
- any process, technology or people challenges that needs to be attended to urgently;
- key result areas that need urgent attention in the first few months;
The above information should get you started. Prepare a few questions so that you can show your worth. Good luck with your interview!
