While economists and politicians hotly debate the efficacy of the Federal Reserve targeting low interest rates to boost the economy, less attention is being paid to the impact on investors. Don Phillips at Morningstar calls such interest rate policies a "War on Savers." He boldly asserts:
"These policies represent a massive transfer of wealth from savers to debtors. To cushion the blow for the millions of Americans who lived beyond their means over the past decade, the Fed continues to penalize those Americans who kept to a budget and set money aside for the future. The cost of these subsidies is in the billions of dollars and puts the retirement security for millions of prudent Americans unfairly in jeopardy."
The city of St. Petersburg is quite impressive—the canals, the architecture, and the history make it a wonderful place to visit. The city is also economically vibrant, which is a far cry from the Russia of old, with long lines for a limited supply of food and necessities. But economic success has not translated into political freedom. Disdain for the government has not overcome the fear of being jailed for protesting.
Let's say that 100 bottles of beer on the wall typically cost $100. Which would you rather have—150 bottles for the same $100 or 100 bottles at a 33% discount? A recent study indicates that most people would choose the 50% increase in quantity over the 33% discount. In actuality, you get the same result in either case—one bottle of beer would sell for $0.67 instead of the regular price of $1.00.
In describing the study, The Economist states that shoppers "prefer something extra for free to getting something cheaper. The main reason is that most people are useless at fractions." Ouch!
Of all the problems that can arise from having two spouses, you probably would not put inheriting pension plan benefits as one of them. Despite the odd circumstances, listen to why this is an important cautionary tale.
The recently departed gambling legend Amarillo Slim famously said about playing poker: "Look around the table. If you don't see a sucker, get up, because you're the sucker." The jury is still out as to whether the same sentiment applies to individual investors in Facebook's initial public offering, fondly referred to by some on Wall Street as "dumb money."
Before we get to the question of whether Facebook was a good buy—that is, whether the price per share represented a reasonable bargain—we first have to consider whether we had sufficient information to make a reasoned decision. Unfortunately, there is not a perfectly level playing field when it comes to initial public offerings (IPOs).