There are not one but three ways in which you can invest your spare cash. The most obvious is a bank account. But for individuals who want a higher rate of return there is the wholesale money market, which may be accessed either indirectly via unit trusts or directly via a money market deposit account offered by a bank.
The underlying question is what you ultimately want the cash for – either investment purposes, or the working capital in your business.
A conservative investment
The major risk associated with money market accounts is so critical it needs to be well understood upfront. Candice Payne, head of retail at Sanlam, explains that the single greatest delusion when it comes to the money market is that your capital is safe.
“It is safe, of course – if you invest R100 you will certainly get your R100 back together with the relevant interest rate. But the real risk with money market accounts is not the threat to your capital, but that over time your capital fails to outperform the inflation rate, in which case you will be losing capital in real terms.” If this is the case, she says, the investor needs to look at taking on additional risk in his portfolio, because the reality is that money market accounts are meant for the conservative investor. “This is of even greater relevance at the moment because of the low interest rate environment we’re in,” says Payne.
So who are money market accounts for?
According to Lisa Macleod, portfolio manager: fixed income at Investec
Asset Managers, it is for those who have already made the decision to opt for a conservative or liquid portfolio and simply want a better return. It has particular relevance to small business owners as it is a vehicle into which they can place their capital while it isn’t working.
You can place your money in a call account with a bank, but depending on the amount, the deposit may earn up to 4% less than on the money market. With banks, the higher the deposit the higher the rate of interest. The higher rates only kick in at about R20 000.
“You can also lock it away in a fixed deposit but you lose the liquidity (it could be tied up for as long as 30 days), whereas you have 24-hour liquidity on the money market,” says Macleod. The improved rate on offer from the money market comes from the bulking of capital: Investec alone has R32 billion in assets under management in its money market fund, which gives it negotiating power with borrowers.
Related: Investment Insider Insights
How money market accounts work
The two types of money market accounts have different value propositions, though in reality they are not much different. You can buy a unit with a money market unit trust, in which case you get all the advantages of bulking, the diversification that comes from being invested across several funds, the benefits of the fund managers’ intellectual capital and expertise, and the security that comes with regulation.
After many years of resistance from the banking sector, which had a monopoly over the investment of short-term funds, money market unit trust funds were first introduced in South Africa in 1998. A money market unit trust fund is similar to other unit trust investments. Your money is pooled with that of other investors, and is then invested in various assets by professional investment managers.
Unit trust funds may invest in shares, bonds, property and cash or a combination of these assets. In the case of a money market unit trust, the underlying investments are money market securities. Money market fund managers specialise in placing your money, on the best terms possible, with institutions that wish to borrow money for short periods, usually less than one year.
The average duration of the portfolio may not exceed 90 days. (This is the average time within which all the instruments held by the portfolio must repay their loans.) Money market unit trusts are classified in the fixed interest category. You can also invest in the money market directly with a bank, which will offer similar advantages but without the benefits of regulation (they are not unit trusts) or diversification cross several banks.
Are banks riskier?
It may seem unlikely that any major South African bank would go under, yet it was the banks in the US and Europe that suffered the most in the 2007
financial crisis. Macleod says the rate offered between unit trusts and banks varies slightly from time to time, depending on whether a bank is aggressively trying to raise cash or not. Most banks offer money market accounts. It is advisable to shop around because the interest rates and the minimum investment amounts vary between the banks. Both options have minimum capital amounts that vary from one to another. Investec’s is R50 000, though the average is R25 000 – R50 000.
Investec, as an asset manager and a bank, offers both options: the unit trust, as well as its Investec Top 5 Money Market Fund. Investec’s rate at the moment is 7,37%, while the average return throughout 2009 for the money market was 9,07% compared to 8,36% on call account. “Entrepreneurs can use a money market account almost as a current account, but with a better rate of return. But it has to be stable cash due to the 24-hour withdrawal time – you cannot write cheques on the account or withdraw immediately, and they would need to identify their daily working capital needs and decide which capital is a little more stable and can be put into a money market account,” says Macleod.
Related: The Deadly Sins of Investing
11 Things You Need To Know About Bitcoin
The cryptocurrency has had a tumultuous existence so far.
11 Bits about Bitcoin
Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.
For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange.
Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.
Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.
Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.
The birth of Bitcoin
The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work.
Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.
An elusive creator
The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it.
In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim.
Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.
Very expensive pizza
The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.”
As of June 14, 2018, 10,000 bitcoins are worth about $64.8 million.
Fintech has become a disruptive force in the financial sector that is threatening the current status quo of banking and finance. The main beneficiary of that is the consumer.
You can spend bitcoins
While it may not seem like it, people continue to use bitcoins to buy stuff.
Federal Bureau of Bitcoin
At one point, the U.S. government was one of the largest holders of bitcoin.
In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins.
Investors have been making a killing by bidding on government-seized bitcoins.
A mountain-sized setback
In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange.
About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.
The billionaires’ takes
Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency.
“Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”
Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin:
“You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”
But not all billionaires are against Bitcoin. Mark Cuban has said its value is inflated, but he recently invested in a venture capital fund that backs cryptocurrency. Richard Branson, however, has spoken more optimistically about it.
The rise and rise of digital currencies – and how they’re affecting your business.
Wealthy twins and a smart teen
Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had).
They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund.
The agency rejected the idea earlier this year.
Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.
Celebrities want in
Celebrities have also expressed enthusiasm for the cryptocurrency.
Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.
Support from a big financial institution
In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies.
The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase.
“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.
A hard fork
On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.
Here’s how Rob Marvin of PCMag explains the situation:
“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.”
Bitcoin Cash allows larger blocks of currency and more transactions per second.
This article was originally posted here on Entrepreneur.com.
9 Warren Buffett Quotes That Will Teach You More Than Just Investing
While he is one of the most famous investors in the world, his expertise goes beyond money.
Check out these nine quotes on time, success, mindset and more
There’s more to learn than finance from one of today’s most famous investors, Warren Buffett. In fact, the businessman, financial guru and philanthropist can teach you a thing or two about life. From taking risks to coping with change, Buffett’s expertise that expands far beyond stocks and dollar signs.
From a young age, the billionaire investor was destined for success – selling garbage bags to neighbors and delivering newspapers. By age 15, Buffett was already worth thousands of dollars and investing in real estate.
However, fast forward nearly 70 years and the “Oracle of Omaha” is now worth a whopping $77 billion, according to Forbes, making him currently the second richest person in the world (behind only Bill Gates).
There’s much to learn from Buffett too.
“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.” – Warren Buffett
“I don’t look to jump over seven-foot bars: I look around for one-foot bars that I can step over.” – Warren Buffett
“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett
“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett
“You do things when the opportunities come along.” – Warren Buffett
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett
“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
“Predicting rain doesn’t count. Building arks does.” – Warren Buffett
This article was originally posted here on Entrepreneur.com.
Your guide to understanding cryptocurrencies, why they are so popular and how you can use them.
Cryptocurrencies, like other forms of currency, provide a means of transacting goods and services. While other forms of exchange, such as fiat currencies (paper money) are issued, circulated and centrally controlled by governments and regulated by banks, cryptocurrencies are electronic and decentralised.
This means that transactions are peer-to-peer, negating the need, or additional expenses, of third party involvement such as banks or governments. The cryptocurrency market penetration will be facilitated by universal Wi-Fi and global mobile phone dispersion, enabling anyone to move money and assets, peer-to-peer, seamlessly and at almost no cost.
This clearly shows that it’s important that businesses and entrepreneurs understand this market in order to plan for the inevitable shift in the way the world transacts finances.
How does a cryptocurrency transaction work?
The infrastructure supporting the cryptocurrency system is called the Blockchain, a digital ledger that stores all transaction information, and addresses three of the most obvious problems of the current money transmittance system:
- It is decentralised, so transaction data is dispersed and not centrally controlled – this also means that the data is a lot more secure than with more traditional systems because there is not one point of entry for hackers.
- There is no third-party involvement (ie, banks), which makes transaction fees significantly lower.
- Transactions are in real-time and not encumbered by trading hours or bureaucracy.
Who controls cryptocurrency?
Like conventional banking, cryptocurrency has a complex underlying structure issuing currency, recording transactions and allowing people to transact. The main difference is that an algorithm issues the currency and ledgers (not banks or governments), storing the information in blocks. Transactions match up public codes relating to user-held private passwords from their cryptocurrency Wallets.
The transaction amounts are public, but who sent the transaction is encrypted. Whoever owns the password to the Wallet owns the denoted cryptocurrency amount shown on the ledger. Even though transactions are added sequentially, many may be added to the ledger at the same time. These chains of transactions grouped in blocks make up the Blockchain.
Are Cryptocurrencies Here to Stay?
Cryptocurrencies, and with it the Blockchain, have unlocked value and opportunities for commerce that would’ve been hard to imagine even a few decades ago. Here are 5 reasons why Cryptocurrency is here to stay:
- A transaction, once confirmed, cannot be reversed or tampered with. So, they are secure and indelible.
- Cryptocurrency is transferred between Blockchain addresses. So, no real-world entities are associated with the accounts.
- Transactions are processed instantly and globally. Therefore, there is no delay in transfers.
- Cryptocurrency uses cryptographical processes. So, funds are locked and only available to private key owners.
- Generally, cryptocurrency does not require permissions from an authority.
Investing in cryptocurrencies
When looking to invest in cryptocurrencies, keep in mind that they are just like other stocks and subject to change in value based on supply and demand. In fact, since cryptocurrencies are not insured, and exposed to market fluctuations, they bear the same risks as stock markets.
Some exciting work has however been done to address these potential fluctuations while also continually optimising cryptocurrency value by companies such as Krypteum, who offer an advanced A.I enabled investment crypto coin.
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