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Hi Guys, in this video I discuss investment for beginners.
KEY CONCEPTS ARE A GOOD PLACE TO START
Equity
One of the things to understand when you thinking of finance is euity. In accounting equity is:
Assets - Liabilties = Equity
An owner of a company wants to see their equity grow so what accountants will do when they do the financial statements is record the assets of the company and the liability and the remainder would be the equity
Assets are what a business owns, a company will own assets that can provide future economic benefits, which in simple terms they will use that asset to make money
Examples of assets are: cash and bank accounts, real estate, personal property such as furniture and vehicles
Equity investing means owning a piece of the company you’ve invested in
Debt financing: A company or entrepreneur could use debt (or more simply known as loans) to provide money required to start or fund a business. Investors might say to you,
The key difference between debt and equity financing is that, in debt financing, you receive your loan amount back with some interest (the interest amount is known upfront). In equity financing you own a stake in the business and thus have unlimited upside potential but could lose your capital.
Cash: It’s essentially the money you put into a bank account. You won’t necessarily lose your money there, so it’s very low on the risk scale, but you’re also not going to make good returns on it - it’s a safe, low return investment for those that want a little bit of upside, but a lot of safety in that investment
Property: Whether it be a house, apartment, apartment building, mall or office block, it is a physical asset you can invest in, either by way of debt investing or equity investing. So, even if the company running the property fails, there still is a physical asset you can sell to recoup all or some of your investment. That makes it slightly lower risk than equity investing, although the property market can be quite volatile.
About the risks of each investment
WHAT IS THE RULE OF 72?
Our objective should always be to make the highest returns at the lowest risk. The rule of 72 is a handy concept to understand how much return on investment (ROI) you require to meet your goals
The idea is that you take the number 72 and divide it by the return you expect, which will provide a good idea of how long it will take you to double your money.
Compound interest means you earn interest on interest