18 | February | 2011 | wealthymatters

Some Financial Thumb – Rules

February 18, 2011 2 Comments

Financial thumb-rules are rough guides for making sensible financial decisions .However they have their infirmities and so need to be used in the right context.Following are a few basic financial thumb-rules:

Pay yourself first rule: From any money you make, put away atleast 10% first before you pay any bills or debts or do anything else with the money i.e. make your investments the first obligation on your money.The general idea is that this money will start working for you by earning interest , gaining in capital value or giving you rents etc. and in time you will need to work less and less as your money starts working for you.
The emergency fund rule: Build a corpus equal to 3-6 months worth of expenses of your household.Life is uncertain and you never know when somebody might meet with an accident , fall sick , suffer losses in business , lose a job or suffer loses due to fires or natural calamities ,war, civil strife etc.The money is to take care of immediate expenses,provide a cushion to fall back on till you find your feet again and if necessary provide a small stake to start over again.The money needs to be kept in a safe place where there is no chance of loss of capital and where it can be withdrawn immediately and without hassles.
100 minus your age rule:This is a thumb-rule to determine how much of your paper assets should be in equities.The general idea is that as you grow older and wealthier you want less volatility and less risk of capital loss.Volatility might complicate withdrawls from the corpus in retirement and lost capital might not be so easily made up for later in life, after retirement.
The 10,5,3 rule : This rule states that you can on an average expect returns of 10% on equities,5% on bonds and 3% on liquid cash and cash-equivalent accounts in the long run.It’s important to remember this rule before reaching for that extra half percent that might lead to capital loss. Read more of this post

Filed under Paper Assets, Theory, Tool Kit Tagged with 10 5 3 Rule, 100 minus your age, 4% Withdrawl Rule, AAW, asset allocation rule, Average Accumulator of Wealth, bonds, cash, cash equivalent, emergency fund, Financial Thumb Rules, get your money to work for you, PAW, Pay Yourself First, Prodigious Accumulator of Wealth, Rule of 114, Rule of 144, Rule of 70, Rule of 72, shares, stocks, The Millionaire Mind, The Millionaire Next Door, Thomas J. Stanley, UAW, William D. Danko

Cold Steel

February 18, 2011 4 Comments

wealthymatters.com

‘Cold Steel’ is a mesmerising read.It is a narration of the takeover battle waged by Lakshmi Narayan Mittal against the management of Arcelor to emerge as the Emperor of Steel.

In 2006, the two largest steel-producers in the world-Arcelor and Mittal Steel, are in the middle of a bitter battle for total market domination

At first Lakshmi Mittal proposes a friendly merger with rival Arcelor, a pan-European company whose interested parties include the governments of Spain, Luxembourg and Belgium.

Arcelor’s mercurial CEO, Frenchman Guy Dollé, firmly refuses,using intemperate language.To quote,“The answer is clearly no…There are two categories of steel. There is premium-quality steel and there is commodity steel. It’s like, there’s perfume, that Arcelor specialises in, and then there’s a sort of eau de cologne which is Mittal’s domain… a lot more technology and grey matter goes into each tonne we sell.” ….. “Part of Mittal’s offer consists, if you’ll excuse the expression, of monnaie de singe.”(literally meaning “monkey money” or “funny money” or tainted money).These same words come back to haunt him later.

The refusal sets the scene for a massive hostile takeover involving billions of dollars of finance and government and shareholder manoeuvring. The corporate battle that ensues takes on epic proportions and becomes one of the world’s biggest and most hard-fought industry takeovers of recent years. It sends shockwaves through the political corridors of Europe, excites the world’s financial markets, enriches thirty hedge funds and transformes the global steel industry.The participants come from many different continents and include six billionaires, many of the world’s top investment bankers (interestingly with two brothers, pitted against each other, one working for Goldman Sachs and the other for Morgan Stanley),top law firms and public relations outfits , presidents , prime ministers and politicians occupying the highest positions in the current and emerging superpowers. Read more of this post