Personal Finance And Investing Archives: January 2009
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25 January 2009
Protectionism: A Prisoner’s Dilemma?
In game theory there is a “game” called the “Prisoner’s Dilemma”. The details of the game are that two players have been arrested. If they cooperate and neither “rats” on the other they will both go free, if one “rats” on the other then the one gets off light and the other one gets a stiff penalty. If they both turn on each other they both get a moderate penalty. In common usage, the basic idea is a situation where each of the parties would be best off if neither of them participated, but much worse off if they don’t participate and the other party does. Is Protectionism an example of such a “game?”
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17 January 2009
What We Should Fear Volume One: Inflation
The economy is always fraught with peril. Your savings and investments are always subject to risk, and it’s your job to protect them. Unfortunately, if it were easy to identify the risks out there, we’d do a better job of avoiding them. One problem that seems to loom in the future of every investment decision is monetary policy. The current crisis is one of deflation. People have less money and feel less secure, so they spend less money. This means that companies have to charge lower prices and make less money, which leads to layoffs, which leads to people having less money and feeling less secure.
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10 January 2009
The Best Investment In The World
By this point in people’s lives they are well aware of the merits of 401(k)s and other retirement accounts. Most people have wisely made them a part of their investment strategy, however many misconceptions still persist about them. While most people do contribute, many of them spend very little time allocating their funds and instead make other hasty decisions based on misconceptions. So here are some important things to know about the best investment in the world: tax-deferred retirement accounts.
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4 January 2009
Saving: The Best Kind Of Investing
Benjamin Franklin once famously said “A penny saved is a penny earned.” But Ben was seriously undervaluing the value of savings. A penny saved is usually worth considerably more than a penny earned, and this is something you should always consider in your daily life. You may wonder how a penny saved can be more valuable than a penny earned, but it’s very simple if you think about it. Imagine for a moment that you purchase an $80 DVD player. In this theoretical situation, you make $10 per hour and work an eight hour day, earning $80. The difference between the $80 you spent on the DVD player and the $80 you made at work is: you have to pay taxes on the $80 from work. So, even though you’ve earned $80 and spent $80, you’re actually behind where you started.
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