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This is a unique educational explanation based on the theme of the book. It is not a direct translation or word-for-word reproduction of an entire chapter of the book. Hello friends, do you want the money you earn to change your life? If so, is earning alone not enough? How we save the money we earn, how we use it, and where we invest it are also important.
Even if a person earns a lot, he or she may run out of money due to unnecessary expenses . Even if someone else earns less, they can save systematically and improve their financial situation in the long run. But investing is not just about buying stocks. First, you need to understand the basics of investing .
Today we are going to look at The Basics of Investing, the second chapter of the book Learn to Earn by Peter Lynch and John Radha Child, in simple Tamil. First, let's understand the difference between saving and investing . Saving means setting aside money for future needs . Investing means investing money in an asset with the intention of earning income or growth in value in the future.
For example, let's say your monthly salary is 40,000 rupees. This includes money spent on house rent, food, transportation, and family expenses. Instead of spending the rest of the money in full, you can save a portion for emergencies. Another portion can be used for investments that suit your goals, time frame, and risk tolerance .
Remember. Savings are the foundation of financial security. Investing is a way to help achieve long-term financial goals. Both are important. Let's understand one important thing. The same items that can be purchased for โน1,000 today may not be available for the same โน1,000 in years to come. The reason for this may be inflation.
Prices of goods and services generally rise when inflation increases. This may reduce the purchasing power of money . That's why we need to learn not only how to save for long-term financial goals but also how to use money . But investing does n't mean you can definitely beat inflation. Every investment has its own unique risks .
Investment decisions should be made only after understanding our goals, time frame, and cash flow needs . There are many ways to invest. The first type is savings methods such as bank savings accounts and fixed deposits . The second type is stocks or shares. When you buy a share of a company, you are acquiring a small portion of the ownership of that company .
The third type is mutual funds. Here, money is pooled from many investors and invested in various assets according to the rules of the scheme . The fourth type is gold- like materials. The fifth category is real estate assets such as land and houses . Each investment type may have different risks, costs, tax rules, and cash conversion facilities.
It cannot be said that one investment approach is right for everyone . You should understand the nature of an investment rather than just making a decision based on its name . Friends, one of the most important concepts in long-term investing is compounding. Compounding is the process of reinvesting the income from an investment and creating the opportunity for that income to generate income over time.
Let's look at a simple example. Let's say you invest Rs 10,000 at a hypothetical rate of return of 10% per annum . At the end of the first year, the amount before taxes and expenses will be 11,000 rupees. If you invest that amount again at the same rate, it will be 12,100 at the end of the second year .
Calculation First year 10000 P1.10 = 11000 Second year 11000 P1.10 = 1 P = 12100 The formula for calculating the amount after a number of years is Future Value Divided by 1.6 Addition A exponent Where P is the initial investment R is the annual rate of return A is the number of years. But the important caveat is that 10% is just an imaginary rate to illustrate the math here .
There is no guarantee that this income will be available in the stock market. Next, let's look at risk and return . Price changes may be less in some investments. Other investments can go up and down in price. For example, the price of a company may rise on the stock market . Likewise, its price is also likely to decrease.
Don't choose an investment just because it has the potential to generate high returns. First ask three questions. One, when will I need this money? Can I afford to lose value on two investments ? Do I understand the risks of this investment? Investing money needed in the short term in assets with high volatility can be problematic.
Therefore, the investment duration and risk tolerance should be considered together . Now an important question. What should you do before buying a company stock? First, you need to understand what business the company does . The second is to examine its revenue and profit growth . The third is to look at its debt and liquidity position.
The fourth is to assess the quality and transparency of its governance . Fifth, we need to examine whether the current stock price is appropriate for the company's financial position and growth prospects . Even if it is a good company's stock, if you buy it at a high price, you may not get the expected returns .
Similarly, a low price alone does not make a stock a good investment . It is important to look at all three: business quality, financial strength, and valuation . Let's remember the basic ideas of this chapter in five lessons . Lesson One: It is important not only to earn but also to save. Lesson Two: Plan money for emergencies before investing .
Lesson Three Compounding can play an important role in the long run . But income is not guaranteed. Lesson Four Understand the duration of risk and the need to convert it into cash . Lesson Five: Research the company's business, financials, and valuation before buying shares. It's important to continue learning the basics rather than looking for a secret formula for success in investing .
Friends, the second chapter of the book Learn to Earn gives us a starting point to understand the basics of investing. Develop financial literacy . Plan your goals . Don't rush into investments you don't understand. In the next video, we will see the third chapter of the Learn to Earn book, The Story of a Company, in simple Tamil .
Please like this video if you found it useful. Subscribe to Global News Tamil channel . Gain financial knowledge, research, learn, and invest responsibly. Thank you, hello.
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