(Small business websites) The House and Senate have each come up

October 30th, 2009 admin Posted in finance |

By speedin08

In 2001, the US economy had entered a recession and the government issued rebate checks to most people in hopes people would run out and spend them and help stimulate the economy. While the effectiveness of that move haven’t been proven one way or another really, congress is currently looking to run a similar program in 2008. The House and Senate have each come up with different rebate plans that are currently under discussion: The House would like to pass a plan that gives $600 to each individual or $1,200 to married couples with an additional $300 per child. The amount of rebates would be decreased for individuals who make more than $75,000 annually or for married couples earning more than $150,000 annually. The Senate is working on a plan with slightly lower amounts, with $500 given to each individual and $1,000 provided to married couples.

This plan also would provide an additional $300 per child. While the amounts are a bit lower in the Senate’s version of the rebate plan, more people would qualify for the money. The money wouldn’t start phasing out until income levels are about twice the House limitations; and the Senate’s bill for the rebates would provide money to people on Social Security as well as our disabled veterans- people who wouldn’t qualify under the House version of the bill. Before the bill can be placed on President Bush’s desk for his signature, the Senate and House need to agree on a compromised version to present. If approved by the President, it would be unlikely for the Internal Revenue Service to issue checks until at least mid-May- until after the rush of the tax season has ended. In 2001, research teams tried to decide what kind of impact the tax rebates had by looking at changes in the government’s Consumer Expenditure Survey. It seems that somewhere between 20 and 40% of the rebates were spent in the first three months of receiving it; with almost all of it spent within nine months of receiving it.

In a separate study, it was found that credit card debt dropped considerably soon after households received their rebates- but within nine months it had risen again as people began putting new debts on their credit cards. What’s interesting is the number of companies that have been polling people to find out what they’ll do with their rebates if they get them. The idea is to spend it and stimulate the economy of course, to help pull us out of what could be a bad recession; but the polls are finding that the majority of people are looking to pay off their existing debt with the rebates. In fact, depending on the site offering the polls, I saw responses as high as 51% claiming they would use the rebate to pay off credit card and other debts; as as many as 36% claiming they would invest it into long term savings options. Of course, what people say they’re going to do with their money and what they really do with it are often entirely different things.

Have you ever planned to save a portion of your paycheck and gone out to dinner instead? Probably everyone has made the “wrong” decision with their money at least a few times in their lives, despite having the best of intentions. The polls looked at are by no means done scientifically as they’re just based on visitors to a particular website; but it’s still interesting to see how many people hope to pay off debt with their rebates. What would you do with yours?

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Six Common Investing Mistakes And How to Avoid Them

By daglawy

1) Racking Up Junk Debt: Credit card offers are ubiquitous in American society. Theyre easy to use because most stores accept plastic, so a lot of people have ended up racking up debt on the plastic crack. According to the Survey of Consumer finances in 2007 something like 44% of American households carry a balance on their plastic (1). This is a problem as credit card debt can be very expensive, with some cards charging upwards of 20%. Solution to this? Get a debit card.

2) Not investing soon enough: Its trite and tired advice, but its true. The more time you have to invest, the more money you can generally make. Time is important for two reasons. First, if you have more time, you can recover from mistakes before retirement. Second, if you have more time you can take advantage of compounding to build wealth. A good way to do this is by purchasing stock in a company with a moderately high dividend payout and good long term business prospects in a boring established industry utility stocks are good for this. Then just sit back and let the dividends compound.

3) Investing to conservatively: The idea behind this is that long term cash is more likely to grow rapidly when invested in stocks or directly in small businesses. Its important that you take this advice with a grain of salt. Last years stock market declines and the nations deep recession have obliterated billions of dollars of US wealth. In addition, this principle is based on the historical performance of US equity markets and tends to ignore historical trends internationally. So, there is no guarantee that riskier assets will yield a higher return, they just tend do do so. Consider instead a mix of safe and risky assets, youll have the best of both worlds.

4) Under or overdiversifying: Conventional wisdom suggests that if you spread your money around, youll be better off. This economic principle is based on the doctoral dissertation of a guy called Harry Markowitz back in the 1950s. Markowtizs theory and ideas were adopted and were subsequently refined into modern portfolio theory by later economists. Its currently become fetishized and is a main pillar of wall street dogma.

Iconoclasts like the somewhat blustery David Kiyosaki argue that diversification is essentially a class based idea. They say that diversification is basically for middle class investors who dont have the resources, time or inclination to develop a business or speculate intelligently. In this case, the numbers back up thinkers like Kiyosaki. Really wealthy people tend to have concentrated stock or business holdings. However, for most people its probably better not to put all your eggs in one basket, its just that if you want to get really rich. you need to think critically about this.

5) Investing in what you dont understand: The world is growing exponentially more complex. Thus, its often hard to evaluate the amount of risk associated with some kinds of investments. For example, the recent stock market downturn was driven by heavy bets on derivatives. The only problem was that these products were too new for banks to reliably calculate the risks associated with owning them. The end result of this as everyone knows was epic losses with attendant titanic social and political repercussions. Another example is the stock market boom back in 2001. Small investors crowded into internet stocks at inflated prices, when in fact most of these investors had no way of accurately judging what the underling prospects of those business were. The outcome of boom of 2001 is also well known and bears no repeating here.

6) Relying on the advice of others: Classical sociological theory argues that information and advice are transmitted via social networks. That is, most people make decisions based on what members of their social networks are doing. For example, they buy stocks because the guy in the cubicle next door bought some. Or they buy a product because their mom or sister in law thought it was a good idea. This is dumb. Youll only go as far as your peers if you follow this pattern. Instead, it makes sense to model your behavior on the advice of people who have demonstrated extraordinary success in achieving financial security. Also, its preferable that the person you model your behavior on be dead live gurus are unreliable because their future track record is unknown. For example, Suze Orman is good, but she could give bad advice, get sued, become corrupt, etc etc. Model your behavior on rich dead people, not your friends.

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