South African investors have access to a wide range of asset classes, including equities, property, fixed-income products and emerging alternatives such as cryptocurrencies. Each of these comes with its own expected returns, risks and performance benchmarks. ROI, or return on investment, is a standardised method used to measure how effectively money has been invested in relation to its cost. Whether assessing rental income from a property or gains from a portfolio of shares, ROI provides a practical way to compare different opportunities.
Key Takeaways
- Good ROI in South Africa Varies by Investment Type: A return between 6 percent and 8 percent is considered acceptable, 8 percent to 12 percent is viewed as strong, and anything above 12 percent is regarded as excellent. These ranges apply differently depending on whether the investment is in property, equities, bonds, or alternative assets.
- ROI Is a Practical Tool for All Investor Types: ROI helps individuals, businesses, and public institutions measure whether an investment provides sufficient value compared to its cost. It is used across multiple scenarios, from private property portfolios and unit trusts to public infrastructure projects.
- South African Investors Have Several Viable Options: Popular investment choices include shares for active control, robo-advisors for passive growth, index funds for low-risk exposure, cryptocurrencies for high-risk opportunities, and government bonds for safe long-term planning. Each comes with different liquidity levels, entry costs, and expected returns.
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What Is Return on Investment (ROI)?
ROI, or Return on Investment, serves as a standard financial indicator that evaluates the gains from an investment relative to its overall cost. It is typically presented as a percentage and reflects how much profit or gain has been achieved from an initial outlay. Important components that impact ROI include the amount initially invested, any maintenance or operating costs incurred over time, and the income or cash flow generated by the asset or project.
To work out ROI, the net return generated by the investment is divided by the original cost of that investment. The outcome is then expressed either as a percentage or a simple ratio.
The general formula for calculating ROI is:
ROI = (Current Value of Investment − Cost of Investment) ÷ Cost of Investment
The term “Current Value of Investment” refers to the present-day worth of the asset. In the case of shares or similar instruments, this figure would typically include the current market price and any costs, such as brokerage fees, that were paid during acquisition.
When ROI is applied to a project rather than a financial instrument, the calculation may factor in the discounted cash flow across the lifespan of the project, as well as any ongoing operational or maintenance expenses. The “Cost of Investment” includes all upfront expenses, such as purchase price and associated transaction or administrative fees. For larger capital projects, this may also involve the total project expenditure at the time of funding.
Since ROI is given as a percentage, it offers a convenient method for comparing the profitability of different investments. This makes it easier for investors to evaluate various asset classes or projects against each other using a standardised approach.
How Is ROI Used to Make Investment Decisions?
Return on Investment (ROI) is a widely used performance metric that helps investors, businesses, and policymakers assess whether an investment yields satisfactory returns relative to its cost. It serves as a guiding tool when making financial decisions, as it provides a clear measure of efficiency and value.
How Businesses Use ROI
ROI is widely used to measure whether projects, campaigns, or investments generate returns that outweigh their costs. Businesses may calculate it for marketing, operations, or new products, while property investors use it to check if rental income covers acquisition and maintenance, ensuring the investment is financially worthwhile.
How Policymakers Apply ROI
ROI is also a useful metric for government departments or policy agencies. It can be applied to evaluate whether public investments or programmes achieve intended goals, such as improving infrastructure, increasing tax revenues, or advancing social outcomes. A strong ROI can help justify continued or increased funding, while a poor ROI may suggest the need for reevaluation or redirection of resources.
ROI for Individual Investors
Private investors frequently use ROI to compare different financial opportunities, helping them decide where to allocate their money for the greatest potential return. For example, an individual may compare the ROI of a high-yield savings account with that of investing in a unit trust or purchasing an investment property. ROI offers a practical way to measure and contrast the potential or historical performance of these options.
Different Investors, Different Approaches
The way ROI is used can vary depending on the investor’s priorities and investment goals. Some may focus entirely on maximising financial returns, while others might take a more balanced approach, weighing ROI alongside other values such as social impact, ethical investing principles, or long-term sustainability. This makes ROI a flexible tool, adaptable to a range of financial strategies and personal objectives.
What Is Considered a Good ROI in South Africa?
In South Africa, evaluating Return on Investment (ROI) depends on the type of asset and the investor’s objective. Property, equities, fixed income products, and alternative investments each carry different expectations for return. While property investments often serve as a common reference point, the principles apply broadly across other asset types as well. The ROI figures below are frequently used benchmarks in the South African context, particularly by individuals comparing returns across different sectors.
| Category | Description |
|---|---|
| Acceptable ROI: Between 6% and 8% | An ROI in this range is often regarded as the minimum return needed for an investment to be justifiable, especially in property or fixed-income instruments. This return level is frequently observed in larger metropolitan areas such as Johannesburg, Cape Town, Durban, and Pretoria, where demand is steady but costs may be higher. Many South African investors adopt the 6% to 8% range as a baseline to ensure operating expenses, financing costs, and inflationary pressures are covered. |
| Good ROI: Between 8% and 12% | A return in this range is widely considered strong and financially sound, especially in sectors or regions showing consistent growth or stability. Achieving this level of return generally means the investment is not only self-sustaining but also produces a reasonable net profit after all deductions. Examples where this ROI range is commonly found include student accommodation, multi-let properties, township developments, or even well-managed equity funds with moderate risk exposure. |
| Excellent ROI: Above 12% | Returns that exceed 12% are seen as exceptional, especially if achieved consistently over time. These types of investments often come with more complexity or risk. They are sometimes associated with undervalued opportunities, such as distressed sales, informal rental markets, or certain private business ventures with high margins. Investors who regularly secure this level of return typically have deep market understanding, a high tolerance for risk, and the ability to manage operational or logistical challenges effectively. |
Best Investment Returns in South Africa to Consider
Stocks: Best for Portfolio Control
Shares are considered one of the most accessible and flexible types of investments, allowing investors to buy and sell according to changes in the market or their personal financial goals. They suit individuals who want active involvement in managing and adjusting their portfolios.
Portfolio diversification is critical. Relying too heavily on one company or sector, even if currently profitable, can increase risk. A well-balanced portfolio helps you benefit from strong-performing sectors while waiting for weaker ones to recover. Experienced investors often view temporary dips as buying opportunities, aiming to purchase undervalued shares at lower prices.
- Liquidity: Shares are highly liquid if there are active buyers in the market
- Minimum: No universal minimum applies, as the entry amount is based on the share price
- Fees: Costs vary depending on whether you use a broker or a trading app. The platform you choose will determine how much you pay
Robo-Advisors: Best for Hands-Off Investment
For those who prefer minimal involvement, robo-advisors offer a convenient and cost-effective way to manage investments. These services use automated systems that rely on client data and algorithms to make investment decisions.
Robo-advisors assess your financial situation, goals, and risk tolerance to create a personalised investment strategy. Clients can opt to automate their trades or use tools provided by the service to guide their own decisions. More advanced robo-advisors cater to a range of risk preferences and investment styles
- Liquidity: Withdrawing funds or selling assets is generally simple, although this depends on the provider
- Minimum: Varies across platforms, with some setting no minimum investment requirement
- Fees: Fees typically range between 0.20 percent and 1 percent of assets under management, with the average around 0.73 percent
Index Funds: Best Conservative Approaches
Index funds provide investors with exposure to a collection of shares through a single transaction. These funds follow predefined criteria, such as tracking the largest companies listed on the Johannesburg Stock Exchange. They are regarded as a stable and diversified option for long-term growth
Capital gains are generated as the value of the underlying shares increases. In addition, investors receive dividends from the income-producing shares within the fund. This combination offers both steady income and capital appreciation potential
- Liquidity: Index funds are actively traded, which makes them easy to buy and sell
- Minimum: Depends on the particular fund chosen by the investor
- Fees: Most index funds offer a transparent and predictable fee structure
Cryptocurrencies: Best High Risk High Reward Approach
Cryptocurrencies are decentralised digital currencies that exist on blockchain networks. Unlike traditional currencies, their value is determined by market demand rather than government backing. Anyone can create a new cryptocurrency as long as they comply with the technical rules of the blockchain.
Since Bitcoin launched in 2009, hundreds of new digital currencies have emerged. Many aim to improve upon earlier models by offering faster transaction processing, better security, or broader functionality. These features make cryptocurrencies appealing to investors seeking higher risk and potentially high returns.
- Liquidity: Cryptocurrencies are widely traded but highly volatile
- Minimum: Entry costs vary depending on the value of the specific currency
- Fees: Trading and mining costs can be significant, especially on smaller exchanges
Government Bonds: Low Risk Retirement Planning
Government bonds are fixed-interest securities issued by the national government. They are considered among the safest investment options available in South Africa. Returns are backed by the government, making them attractive for risk-averse investors.
Interest rates on South African government bonds ranged between 7.8 percent and 11.5 percent in December 2022. Investors can choose short-term bonds of three months or hold longer-term options that mature in up to thirty years. This flexibility allows you to align the investment with your financial planning goals
- Liquidity: Government bonds are widely traded and easy to buy or sell
- Minimum: You can begin investing with as little as R1 000
- Fees: There are no service charges, commission fees, or brokerage costs on government-issued bonds
Conclusion
Return on Investment (ROI) remains one of the most useful tools for South African investors to assess the potential value of different opportunities. Whether investing in property, equities, or government bonds, understanding what constitutes a good ROI helps guide better financial decisions. With returns typically ranging from 6 percent to over 12 percent depending on the asset class and level of risk, it is essential to match your expected return with your risk tolerance, time horizon, and financial goals. From hands-on approaches like stock trading to more passive strategies using robo-advisors or index funds, South Africans have access to a wide range of investment options that can help build long-term wealth if selected and managed wisely.
Frequently Asked Questions
What is considered a good ROI in South Africa?
A return of 8 percent to 12 percent is generally regarded as good, particularly for property and equity investments. Returns above 12 percent are considered excellent but may come with higher risk or complexity.
How is ROI calculated?
ROI is calculated by dividing the net return of an investment by its total cost, then multiplying by 100 to express the result as a percentage. The formula is: ROI = (Current Value − Cost) ÷ Cost × 100.
Can ROI be used for comparing different types of investments?
Yes. ROI provides a standardised way to compare performance across different asset classes, whether you are looking at property, stocks, bonds, or even small business ventures.
Is a high ROI always better?
Not always. A higher ROI often indicates more potential gain, but it may also involve increased risk. It is important to assess the risk profile and reliability of the investment before choosing based solely on return.
What investment options offer strong ROI in South Africa?
Common investments with strong ROI potential include student housing, multi-let properties, equity unit trusts, and in some cases, cryptocurrencies for those willing to accept higher risk. Government bonds offer lower but more stable returns for cautious investors.
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