More tricky money terms explained

by Rene Roux
June 21, 2011 Comments (2)

René Roux, head of Sanlam Liquid, translates some more commonly used personal finance terms and gives you some handy tips to use these to your financial benefit.

Diversification (see also Balanced Portfolio in previous article)

The method whereby investment is spread over a range of different investment areas (for example stock market shares, property, cash) in order to reduce the overall risk of loss, should a single investment area perform poorly.

Tip: Diversification is a good idea especially if you cannot afford to make high-risk investment decisions.

Endowment fund

This is a savings vehicle into which the investor pays a monthly installment to a life assurance company for a fixed period. The regular payment is invested in a range of assets.

Tip: This is a good medium-term savings option and is a good way of forcing yourself to save, because withdrawing funds before the end of the period will bring financial penalties, and you get the benefit of life cover as well.


A rise in the general level of prices of goods and services in an economy over a period of time.

Tip: When contributing monthly to a savings investment be sure to link it to inflation, or increase the premium annually to ensure your capital does not devalue over time.


A form of risk cover that you take out to protect you financially in case something happens to you or you incur a loss. You pay an insurance company a monthly premium and they provide financial cover for uncertain, possible future loss.

Tip: Talk to your financial advisor to make sure you have suitable risk cover depending on your life stage and personal situation.

Interest rate (also known as finance rate)

The fee charged by a lender for money you have borrowed from them.

Tip: Use your positive credit rating when applying for vehicle finance and home finance to negotiate a favourable interest rate. Pay your loans with the highest interest first.

Mortgage or housing bond

A mortgage (more commonly called a housing bond in South Africa) is a loan to purchase a home. The buyer puts down a deposit, and the mortgage (loan) pays for the remaining cost of the home.

Tip: It is a good idea to pay off your mortgage as soon as possible as you can save a lot of interest on that loan.

Retirement annuity (RA)

An RA is a retirement savings vehicle by which you pay a premium every month until the minimum age of 55. At retirement you receive a portion of it as a lump sum and the remainder is reinvested to give you a monthly income. An RA is a disciplined way of saving as you cannot touch your funds before the age of 55. It is also offers tax benefits. Anyone can take out an RA and it is not affected when you change jobs.

Tip: It is so important to start saving for retirement as early as possible to ensure you will be able to maintain your standard of living when you retire.

Unit trust or collective investment

A fund which allows you to invest in stockmarket shares either with a lump sum payment or in monthly installments. This fund is managed by a team of experts who select which shares to buy on your behalf.

Tip: Unit trusts are medium-term investment vehicles (three to five years) and they are flexible because you can withdraw funds by giving 24 hours’ notice.

Now that the world of personal finance is demystified, embrace this new-found knowledge and make the right financial decisions to benefit you and your family.

Sanlam Life Insurance Limited is a licensed Financial Services Provider.



  1. Hellow.

    Please help me i want to know about the unit trust.

    Comment by nolwazi masango on August 22, 2011 at 1:27 pm

  2. Hi Nolwazi. Thanks for your comment. The best person to give you advise on unit trusts is your financial adviser. If you do not have one please call our call center on 08 22 33 5000 and we’ll put you in touch with one. You can also visit the Sanlam website for more information:

    Comment by Reality on August 23, 2011 at 10:40 am

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