There has been a lot of good news about the economy in 2012. With each passing month, it seems that unemployment drops further, the stock market goes higher, and the housing market… well, that’s why there is still a pretty big question mark out there.

Economy 2012 Outlook

Typically, after an economic downturn, the stock market leads the way (it’s a leading indicator) by rising in the months before various economic reports (lagging indicators) start rising. If all goes well, the stock market’s rise, is legitimated by improving corporate earnings and then backed up by an increase in hiring that improves the employment outlook across the economy. Once these things happen, the U.S. economy kicks into gear and things march upward until the next correction, recession, or god forbid, depression.

The stock market has gone nearly straight up since the beginning of 2012. Earlier this year the Dow went over 13,000 for the first time since 2008. Not far behind, the S&P 500 index passed its 2008 high-water mark earlier this month. And, as Reuters and other report, the number of Americans filing for new unemployment benefits dropped to a four-year low. This follows the last few months of good labor market news.

So, why aren’t economists and the public at large more excited about this economic recovery. There are many reasons, but two of them really stick out.

2012 Housing Outlook

There is still a big problem out there in the housing market. Some analysts say that foreclosures are down only because the banks were holding off while negotiating a settlement over bad foreclosure practices and that a huge backlog of foreclosures is now heading for the pipeline. If this is true, the flood of new foreclosed properties onto the market, plus the economic downdraft caused by people losing their homes, and being afraid of losing their homes, could pull the whole economy back into negative territory.

Until housing is more stable and there are no huge waves of foreclosure on the horizon, it will be tough to consider this economic recovery to be on solid footing.

Will Politics Destroy the Economy?

The other very big problem out there is Washington D.C. and the increasingly polarized politicians who every day seem to care less about America and America’s wellbeing and more about what is good for their specific political party. Our so-called representatives nearly drove the world’s economy off of a cliff with their brinkmanship on the debt-ceiling.

An upcoming presidential election only makes that whole mess worse.

On one hand, with a Democratically controlled Senate and a Republican controlled House of Representatives, there is little chance of any meaningful new legislation getting passed any time before November. That means that Congress won’t be able to proactively derail the economy.

Unfortunately, there is a ticking economic time bomb waiting for this divided Congress come January 2013. That is when the huge automatic budget cuts from that debt ceiling deal are supposed to kick in. It is also when both the Bush tax cuts and Obama’s recently extended payroll tax cuts are set to expire.

In other words, three enormous amounts of money are poised to be sucked out of the economy all at once. If the train wreck that is Washington doesn’t get its act together, doing nothing may be all that is needed to make months of rosy economic news moot.

That’s why you won’t find anyone celebrating no matter how benign the economic data seems. Unless the economy is roaring hot enough to overwhelm the possible one-two punch from a sick housing market and a sick Congress, then things are still very shaky.

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Will the Economy Recover in 2012? originally published at Personal Finance Blog - FinanceGourmet.com

Apple (AAPL) announced that after years of building up a massive pile of cash with its record earnings that it will begin to return some of that money to shareholders. Apple will pay a quarterly dividend of $2.65 per share starting in July. It will also repurchase up to $10 billion in stock over the next three years.

So, what does this Apple announcement mean for the stock and for the company?

Apple Dividend

At first blush, Apple’s announced quarterly dividend seems very large. But, how much is Apple’s dividend? It works out to $10.60 per year. That’s higher than most companies pay out in dividends. However, remember that Apple’s stock price is much higher than most companies. The stock currently trades around $600 per share. That makes the dividend approximately 1.8 percent, which, while respectable, is nothing to write home about.

Why did Apple announce a dividend now?

There are several reasons that Apple has finally decided to start paying a quarterly dividend after refusing to do so for years. First, and foremost, is that Steve Jobs is no longer around. Apple’s iconic CEO had the street cred to tell people, “No dividend,” no matter how high the companies cash balance got without getting anything other than minor push back. Although new CEO, Tim Cook, gets to claim some of that credibility as Apple’s CEO, the truth is that he is not Steve Jobs, and the larger Apple’s cash horde got, the more people would wonder whether he was doing the right things with it.

Second, Apple’s cash pile had grown very close to the psychologically important level of $100 billion. Although there is little real world difference between $99 billion and $101 billion, there is a big difference in people’s minds. Building up a cash account of greater than $100 billion would only raise more questions about what that much money could possibly be used for and when, if, such a huge transaction (or series of transactions) occurred, would they actually be worth the price.

Finally, Apple is growing up. As THE growth company of the 21st century, Apple raced ahead of former tech superstars to become the most valuable company in the world by market capitalization. It’s hard to make the claim that growth will continue to come forever when you are already so big. By moving now, while there are no questions about Apple’s state, the company establishes a sizable dividend as the normal course of business. Waiting until growth stagnated would have sent the message that the dividend came because the company ran out of room to grow. Paying a dividend also opens the company up to investment from mutual funds and other institutional investors who require dividends to allow an investment. This means Apple no longer relies on only growth investors for its stock price.

Apple’s Share Buyback

Apple’s share repurchase announcement makes much less sense. The company’s stock trades at an all-time high, making it difficult to suggest the stock is undervalued.

I’ve questioned the size of IBM share buybacks in the past, which seem designed more to allow executives an easier time of hitting financial targets than improving shareholder value. It seems odd that Apple would need to be doing such things with everything going right. However, it is possible that the directors and executives at Apple see the writing on the wall. By announcing the share buy  back now, they avoid the scrutiny of using such share repurchases to meet those all important per-share metrics that bonuses are tied to.

Ironically, the stated reason for Apple’s buyback is the most concerning. The company says that it is repurchasing stock to avoid dilution caused by future stock grants to employees and executives. $10 billion worth of stock grants in the next three years? That seems incredibly generous.

For now, there is really no downside from an investor’s point of view. Apple shares are still priced well based on projected earnings. Also, it appears that even with the new dividends and share repurchase, Apple will still be adding to it’s reduced cash pile as new earnings and profits roll in.

Overall, this is good for Apple stock, especially if the company continues to focus on dividends and not so much on share repurchases.

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Apple Stock Paying Dividends originally published at Personal Finance Blog - FinanceGourmet.com

As always, the mainstream media perked up about the stock market and investing world when the Dow Jones Industrial Average passed the made-f0r-headlines 13,000 level. The guys that write news story headlines love round numbers, maybe because everyone else does too. But, just like our infatuation with round number birthdays, such as turning 40, there is no real difference between Dow 12,956 and Dow 13,000, just like there is no real difference between being 39 and being 40 years old.

Is Dow 13,000 Meaningful?

The 13,000 number is purely psychological, but it does provide an opportunity to take a look at how the stock market and the economy are doing lately.

First, and foremost, most storied correctly noted that this is the first time the Dow has managed to gain the 13 K level since 2008. That is significant for two reasons. One, 2008 basically marks the beginning of the stock market crash caused by the bursting of the housing bubble and the subsequent financial crisis, all of which triggered what has become known as The Great Recession. Two, it means that maybe some investors should be seeing a recovery in their portfolios.

It is tempting to draw the conclusion that this means the market is back and fully recovered. However, that would be jumping the gun. While the stock market is a leading indicator, it’s pricing is currently based on pretty much everything going right in the near future. In other words, this level is precariously balanced between the Greek debt crisis lessening, the U.S. economy continuing to improve, and Washington D.C. not ruining the whole thing in a rash of election year politics.

Lost Decade Lost?

Perhaps more significant than the mental importance of a round number like 13,000 or what it means relative to 2008, is what this level is starting to represent in the bigger context.

Over the last few years, investment product marketers, particularly annuities, have made a lot of hay out of what is called, “The Lost Decade.”

The lost decade refers to the concept that if you invested some money 10 years ago, you have the same or less money than when you started. Of course, to them, the solution is an investment product with a guaranteed rate of return such as a variable annuity or equity-index annuity.

We’ll leave that discussion for another day, but let’s take a look at where we are with the recent market improvement.

The week of March 4, 2002 saw the Dow close at 10,572.49, significantly less than the market’s current 13,000 level. Now, that is hardly an eye popping return for the last 10 years, but it starts to throw cold water on that argument, particularly if the market continues to improve.

The other thing to notice is how quickly this whole thing happened. From that 13,000 of 2008 to under 7,000 in 2009 took less than a year. That scared a lot of people and many of them pulled their money out of the stock market or stopped putting money into their 401k plans or IRAs. Unfortunately, as history has shown time and again, that was exactly the wrong move.

From the 6,600 level in March, 2009 the market made a wrenching set of moves up and down shaking confidence even further. But, given the benefit of hindsight, the market essentially climbed right up from that low to over 10,000 by the beginning of 2010. 2011 started around 11,500 and now, in 2012, we are talking about 13,000.

However, there has been no “all clear.” No one says the economy is out of the woods. It is only recently that unemployment has started to come down and that other economic statistics have started to go up. In other words, if you have been waiting for things to get better or more stable before you moved back into the market, you are already too late. This is why most people never get the 10 percent historical return in the stock market. When you pull out when things are low, chances are you don’t get back in until they have already recovered.

What will the next 10 years bring? I don’t know, and neither does anyone else. What I do know is that if you maintain the proper asset allocation, rebalance  your portfolio annually, and stay invested, you’ll be richer than you are today.

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Dow 13,000 What Does It Mean? originally published at Personal Finance Blog - FinanceGourmet.com

The April jobs report is due out from the U.S. Labor Department on Friday. While economic statistics typically have a temporary effect on Wall Street before being shoved aside by whatever bit of news or data arrives a few days later, the April jobs number could be a bigger deal than usual.

Recently, the Federal Reserve left interest rates unchanged. Following the announcement, Fed Chairman Ben Bernanke held the first ever Fed press conference in which he laid out the Fed’s view of the U.S. economy. He suggested that the economic recovery is slowing. He didn’t use the word fragile, but plenty of people heard it anyway. He also suggested that inflation was tame and that any uptick was dwarfed by the greater potential for a slowdown in growth.

Jobs Key to Economic Recovery

Business spending has been measured, despite a tiny boom going on in Silicon Valley. Consumer spending has been whacked by not only by widespread job losses, but also by the housing market crash and subsequent collapse of the mortgage industry.

Many homeowners have no equity left in their homes. Those that do are finding that terms for second mortgages are no better than the difficulties faced by many in getting first mortgages. Refinancers aren’t doing any better regardless of credit score and loan payment history.

In other words, the only source of new money for this economy is new jobs. Without them, the recovery is doomed. With them, what is now a fragile economic recovery could slowly bloom into a full-fledged recovery.

The April jobs report is expected to come in with around 200,000 new private sector jobs. If the actual jobs number is close, expect the usual temporary effect from the jobs report, up if better than 200K or lower if less, either way, faded into market memory by the middle of next week.

If, on the other hand, the jobs number comes in substantially lower, expect some serious fallout. Unless analysts choose to write off April as an anomaly, low job creation suggests the economy may not be recovering, slowly or otherwise. That suggestion could trigger the slow unwinding of the current bets on Wall Street that better numbers and better growth is on the way for stocks and earnings. Without that optimism, nothing is holding this market up.

Low job growth, plus Washington budget cutting that slashes jobs at the Federal Government could be the death blow for an economic recovery that has been slow and unsteady thus far.

If investors start worrying too much about that possible future, the market is due for another downturn that could wipe out all the gains for this year and may even start wiping out last year’s stock market rise.

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April Jobs Report Could Have Big Impact On Stocks originally published at Personal Finance Blog - FinanceGourmet.com

Several major banks, including most of those deemed “too big to fail,” are set to raise their dividends and announce large stock repurchases after passing the latest Federal Reserve “stress test.”

Banks and financial institutions that have repaid their government bailout TARP funds and passed the stress test have been given the go-ahead by the Federal Reserve to make new capital-based decisions such as increasing their dividend payouts or doing share buybacks.

Shortly after the Fed’s announcement, the financial sector came alive with press releases about how the banking stocks would take advantage of the new allowances.

J.P. Morgan announced both a higher dividend and a share buyback, for example.

Banks Raising Dividends After Drastic Cuts

During the height of the banking crisis, most banks and financial stocks were forced to cut their dividends to minimal levels, or even to zero. Eliminating their dividends took away one of the major reasons to invest in financial stocks, which historically have provided solid dividend income to investors. Even the the financial sector’s best preferred stocks were forced to slash their dividends.

The quick moves by the big banks and Wall Street firms to reverse their dividend cuts offer a glimpse at how the banks themselves feel about their current position in the capital markets.

It is not surprising that the same banks who did not have enough capital to weather the banking crisis now believe that they have enough capital to weather whatever comes next. The interesting part will be how banks choose to implement their newfound regulatory freedom.

Check out Citibank rewards Premier Card review.

Banks announcing big share buybacks are focusing their efforts on raising their stock prices. Buying back shares reduces the number of outstanding shares and theoretically, causes stock prices to rise by lowering the available supply of bank stock shares.

Banks announcing higher dividends are focusing on returning to their position as high dividend-paying stocks. This action suggests that the company is comfortable in their long-term revenue and balance sheet position. Unlike a share buyback, which is only a one-time authorization to repurchase shares, not a commitment, an increased dividend is an on-going capital commitment.

Cutting a dividend requires a high-profile announcement and is generally regarded as both bad news and a sign of bad management. As such, companies are very careful to only raise dividends when they are confident that they will be able to continue paying them.

Banks Good Investment With Higher Dividends?

Are banks stocks a good investment now that they will be paying higher dividends and repurchasing shares?

For financial stocks that lean more heavily to share buybacks, the message is mixed. A share buyback demonstrates that management is focused on the stock price, which can be a good thing. However, short-sighted focus on stock price in order to maker sure it rises so that executives can cash out stock options and bonuses can be a very bad thing.

If, on the other hand, management genuinely believes its stock price is undervalued, then a stock buyback signals a good time to invest.

In other words, investors must carefully analyze both the quality of management and an assessment of their motivation to make a good investment decision. Only experienced investors willing to do in-depth research are going to benefit from this kind of investment analysis.

Higher dividends are a better way to judge how legitimate a banking stock move should be read. As investors have learned (and re-learned) time and time again, real cash payouts in the form of dividends are harder to fake with accounting tricks and bogus bookkeeping.

Investors looking to get back into the financial sector would do well to consider higher dividend payouts a better signal than big share buyback plan announcements. J.P. Morgan’s increasing its regular dividend by 20 cents and approving a large stock repurchase is better news than Wells Fargo’s announcement of a one time special dividend coupled with a large share buy back, for example.

Are you more inclined to buy bank stocks that are raising their dividends?

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Banks to Buy Back Shares, Raise Dividends After Passing Fed’s "Stress Test" originally published at Personal Finance Blog - FinanceGourmet.com

The November jobs report came in worse than predicted. Recent reports suggesting that consumers were spending more money and that first-time unemployment claims were dropping suggested that the Great Recession might be coming to an end in 2010. Alas, the jobs report shatters that idea for the short-term.

A recovery without new jobs isn’t worth the paper it’s statistics are printed on. Ongoing economic recovery requires that not just the people who are currently employed go back to spending and non-fear based economic decisions, but also that more people join their ranks. Unfortunately, that can’t happen if people are not returning to being employed.

Smart money decisions will swing from taking advantage of low prices and low interest rates to saving cash. While increasing savings is good on a personal level, it isn’t necessarily good for the economy overall.

The possibility that jobless benefits will begin to run out for millions of Americans only adds an additional weight to the overall economy. Put it together with States losing billions of dollars worth of Federal money from economic stimulus programs ending in 2011, and you have a lot of negatives pulling on the first quarter of 2011.

The Federal Reserve’s recent announcement to continue providing monetary stimulus is no doubt tied to the expanding scope of economic concerns. Whether the Fed can keep the economy from falling backwards is unknown, but it can blunt the effects of all the negatives lining up against a strong economic recovery next year.

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Unemployment Report Bad News for 2011 Economy Recovery originally published at Personal Finance Blog - FinanceGourmet.com

The huge government bailout of banks during the height of the banking crisis was the cause of much concern and hand wringing. Among political types, the debate centered around the theoretical concepts of whether or not the government should be involved in propping up banks and whether or not such involvement constituted something “socialist.”

Whenever the political theories involved, as a more practical matter, there were some very real concerns about how and when the government might be able to undo some of the things they had done. One example was the government’s bailout of Citigroup. The Treasury provided $25 billion to the banking giant. In exchange, it got an enormous amount of preferred stock. At the peak, the U.S. Treasury owned approximately 27 percent of Citigroup stock.

This unprecedented arrangement left some very difficult questions up in the air to be determined later, not the least of which is how does someone — the U.S. Government included — get out of a 27 percent position in a major financial institution without causing more problems?

Thankfully, recovering markets and an improving situation at Citigroup have made it unnecessary to answer such questions under difficult scenarios. Rather, the Treasury has been selling off the shares of Citigroup stock it owns over an extended period of time. The shares have been mopped up by the market. While all of those shares do have an effect on the stock and the markets, it hasn’t been something that sticks out, and so things have gone on as normally as possible.

An interesting milestone is approaching for the TARP program regarding the Citigroup bailout.

In addition to the $25 billion cash the government traded for preferred stock, the Treasury paid $3.25 per share to convert the preferred stock into regular common stock. In total, the Feds are into Citigroup for about $45 billion.

So far, sales of Citigroup stock have generated $41.6 billion. That means that the government need only earn approximately $3.4 billion on the remaining shares it owns in order to “break-even”. Any amount above and beyond that actually ends up generating a profit for the government on its investment in Citigroup. That shouldn’t be too hard considering it was just announced that during the 4th quarter, they have authorized up to 1.5 billion shares to be sold.

With Citigroup stock trading for north of $4 per share, this quarter’s sales could cross the mark and turn the Citigroup bailout into a profitable investment for the government.

Say what you want about the politics and theory of the matter, when was the last time you heard of the United States Government actually turning a profit on something it did “for the good of the country?”

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Government Making Profit From Bank Bailout? originally published at Personal Finance Blog - FinanceGourmet.com

Now that the new Facebook movie is coming out, even more people are going to be clamoring for information about just what Facebook is, what the Facebook company is like, and, of course, how to invest in Facebook.

The catch is, there is no Facebook. Not a Facebook company you can invest in at least. Should savvy investors be looking to buy Facebook stock when they can?

Investing In Facebook

Let’s start with the basics.

When most people think of stock, they think of the stocks that trade on the major stock exchanges like the New York Stock Exchange. The companies that trade their stocks here are called publicly-traded companies, because shares of their stock are bought and sold on public exchanged like the NYSE, AMEX, and NASDAQ. There are also many companies, both big and small, that do not have stock shares that trade on the public markets. These companies are often referred to as privately-held companies, although that is not always a technically accurate decision.

Facebook is NOT a publicly traded company. There are no Facebook shares of stock to buy on the NASDAQ or any other public stock exchange. That means that there is no way to use your brokerage account to buy stock in Facebook.

Technically, if you wanted to — and a lot of people do — you CAN buy shares of Facebook on certain boutique exchanges that allow people who own shares of the privately held Facebook to sell them to other people.

There are some very important things to understand before running off and trying to find one of these Facebook stock markets.

First, as a private company Facebook has no obligation to release ANY financial information of any kind. Everyone knows that Wall Street likes companies to massage their books a little bit to make things look good, but Facebook doesn’t even have to share THAT kind of data. Anything you have heard about the company is either, rumor, second-hand, or at the very least, unaudited and unverified.

How Is Facebook Valued At Billions of Dollars?

It won’t take you long to find a news story or blog post or financial analyst staying that Facebook is “worth” billions of dollars, or that the valuation of Facebook is billions of dollars. However, that number is in large part, a guess.

Typically, a company’s valuation is the current price per share of its stock times the number of share of stock outstanding. In other words, the number of shares times the price per share.

Since Facebook does not have a publicly traded stock, this number can’t really be used. But, remember those private exchanges where Facebook shares can be sold by Facebook insiders? There is a price per share when company stock is sold on those exchanges, and one could, multiply that number times the number of shares of Facebook there are to get a market valuation.

Is that a real value?

In a word, no.

Consider that these markets are highly illiquid. There simply are not that many shares offered at any one time, and there are not that many buyers at any one time. That means that the prices set on these exchanges are the price of a limited commodity with a limited pool of buyers. This is NOT the same thing as the public markets.

What is Facebook really worth?

Until the company goes public with a Facebook IPO, nobody really knows. Even then, the publicity and popularity of the company coupled with the number of people who think that the company is a good investment, no matter what any numbers say, all but ensures that the company will start with a bang. A high per-share IPO with a fast price increase in the opening days is all but assured. After that…

There is one thing that people should start thinking about when they are racing to attach these huge numbers to Facebook’s value. The company has not gone public yet.

Despite huge demand for the shares, and investors lining up to snatch-up pre-IPO shares, the company has not even made the most basic steps toward going public. The optimist would say that the company is waiting for the right time. A more realistic look might wonder if the company CAN go public without losing the mystique that makes it valuable.

Consider that many Facebook investors, including venture capitalists and early-stage angel investors, both of whom like to cash out as soon as possible, have been invested in Facebook for a very long time. Consider also that numerous large investments have been made over the last few years, often in exchange for big ownership stakes or very preferential treatment. Consider that Facebook just passed 500 million users and that many in the tech industry are wondering if Facebook is set to be a Google killer.

You have to wonder, what else could the company need?

The answer may very well be MONEY. Until recently, Facebook wasn’t focused on revenue, and often said so. Now, the company sells advertising and has released its Facebook Credits system to generate revenue from the Facebook website. As a private company, nobody knows how big those revenues are, or where they come from. The answer might not be a good one.

It seems that Facebook going public is inevitable in the near future, but for now, there are no moves in that direction. Perhaps the company simply needs longer to pretty up its balance sheet, or it just needs more time to grow its revenues.

Whatever it is, one thing is clear. If Facebook’s investors thought they could be getting $300 per share right now for their investments in an IPO, there would be a lot more rumblings about going public.

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Facebook Valuation Estimates Billions Wrong? originally published at Personal Finance Blog - FinanceGourmet.com

Is the recession really over?

That is the question a lot of people are asking today as newspapers, news websites, and television news shows lead with a headline that seems to declare that the economy is back to normal. Of course, this is not at all what is going on. This presents another opportunity to take a quick look at how financial facts and financial reporting are not always in sync.

First, the actual event that occurred is that the National Bureau of Economic Research, or NBER, released a statement saying that “a trough in business activity occurred in the U.S. economy in June 2009.” Obviously, this does NOT mean the economy is back to normal, a fact that the NBER statement goes out of its way to highlight.

In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.

Why is every news outlet in America proclaiming that the recession is over then?

Technically, the recession is over, but that doesn’t necessarily mean what people think it means. Assuming the picture below depicts a hypothetical economic cycle of growth, or expansion, followed by decline, or contraction, the “end” of the first recession occurs at the lowest point of decline, as indicated by the red arrow.

Notice how this in no way implies that the economy has returned to normal. For one thing, there is no such thing as a “normal” economy. Technically, the economy is always growing, contracting, or flat. In other words, the economy is always moving. People like to think that a growing economy is “normal” but there is nothing more normal about growth than there is about a shrinking economy.

Looking at the picture above, no one would dispute that the red arrow points at the time when the economy stopped shrinking and started growing again. This is what it means when the recession is over. However, this DOES NOT mean that the economy has gotten back to where it was. In fact, in the graphic above, the economy goes through two more recessions before growing back to the highest point of expansion from the first economic cycle.

Declaring Recession Over

It is also important to realize that NBER is not a forecasting group. In other words, NBER does not make predictions about whether or not the economy has hit bottom. Instead, NBER looks at historic data and then determines where the bottom of economic contraction occurred. NBER is essentially looking at a graph like this, and pointing out where the lowest point of the trough occurred.

This also does not in any way state that the economy cannot go down from here. Economic expansions can be very short-lived. When a recession ends and a new one begins shortly thereafter, is often referred to a double-dip recession. That may still happen to the U.S. economy, or it may not. Either way, all that anyone is saying today is that there was some upward trend in the economy that started in June 2009. How much or how long that upward movement lasts, is still to be determined.

Finally, remember that this has NOTHING to do with the stock market, the real estate market, or any other financial markets. Economic data is tied to how much stuff the country is making, how much money the country is spending, and how many people are working. It is not about how well the stock market is doing or if stocks are going to make money again.

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Is The Recession Really Over – Recession Ended in June 2009 News Reports Say originally published at Personal Finance Blog - FinanceGourmet.com

Black Friday has come and gone. Cyber Monday is history. Yet, online shopping continues in full force. Various reports suggest that online shopping has increased dramatically this year, likely due to the increasing usage of broadband connections in the home, and the draw of huge savings secretly located on the Internet if you can just find the right combination of coupon codes, discount websites, and wholesalers online. However, as always, when it comes to personal finance what you don’t know can hurt you. Make sure you understand all of the details regarding online shopping for bargains. Otherwise, you may get burned.

Amazon Makes Online Shopping OK

Not long ago, online shopping was the exclusive providence of very specific people, typically techies, and ultra-bargain shoppers who linked together in electronic discount finding groups reminiscent of the old coupon clubs. A few appearances on Oprah by folks like "Coupon Mom" helped drive online shopping and deal finding to the forefront of the American consciousness. But, what finally pushed online shopping over the edge from the wary, angst filled, activity it used to be to a common shopping method used by teenagers, little old ladies, and the technological inept alike was the legitimizing factor of Amazon.com.

When Amazon burst onto the scene a decade ago, it was a revolutionary idea. Selling books online meant that not only could Amazon offer deep discounts on books, but it could also stock many more titles than local booksellers could on their shelves. Even the big national chains like Barnes & Noble and Borders couldn’t compete with how many books Amazon sold. The offer to order a book for you began to pale by comparison. Instead of waiting for the bookstore’s regular shipment of books to include the book title you were looking for, you could order the same book from Amazon and have it delivered directly to your house right away.

For a while, books, were one of the things that was OK to purchase online. There were many things that made them safe. First, any book Amazon.com sells is exactly the same as the books on the shelves at Barnes and Noble. In other words, there is no concern about quality or some sort of bait and switch scam. Secondly, shipping costs were relatively low. The savings offered on the price of the book was larger than the cost of sending it in the mail, which meant a good deal, was still a good deal even with shipping. This was no small factor as online pet supply websites found out when it turned out no one was interested in buy 50 lb. bags of dog food online due to the ridiculous shipping costs. Finally, Amazon had good customer service. Products could be returned, and exchanged, and over time, the company became a household name, erasing the fear of giving out your credit card number online.

Once Amazon started selling products beyond books, the barriers were officially broken, and online shopping was a common thing among all groups of people.

Not All Shopping Websites Are Like Amazon

Unfortunately, this familiarization with online shopping via a retailer like Amazon has made many Americans let their guard down when it comes to buying online. It is important to remember that not all merchants are Amazon.com. In fact, precious few are. That means that you need to find out all the facts about who you are buying from FIRST before placing an order, no matter how great of deal it is.

Top Things To Know About Online Shopping Websites

1. Return Policy – Not just that they accept returns, but the details as well. Who pays for shipping? How long is the return period? If it is also a brick and mortar store, can you return items to the store? Is there a restocking fee? Most importantly, under what conditions can something be returned? Many sites allow returns, but only for defective items. That means if you don’t like it, or it isn’t what you thought it would be, then that is just too bad.
2. Shipping and Handling Charges – Even on Amazon.com you have to be careful of this one. Amazon lets anyone sell on their website. Unfortunately, it sorts prices based on the cost without shipping. That means that the vendor who sells for $9.99 plus $8.95 shipping is listed as cheaper than the vendor who sells for $12.99 plus $2.99 shipping.
3. Is It Really Amazon – Speaking of Amazon. The website doesn’t always make it easy to tell if you are buying a product from Amazon, or from some third-party using Amazon as a store front. It matters because they have very different return policies and shipping time frames.
4. Who Is It?  – Amazon isn’t the only website that makes it harder to see who you are actually doing business with. Don’t check out the main website to see if they are legitimate, check out the actual seller. There is a big difference between how legitimate eBay.com is and how legitimate one of its storefront sellers is.
5. Privacy Policy – Will your name and address be sold on lists as a sucker who buys stuff online from unknown websites? You can never know for sure, but make sure you check the privacy policy to ensure that the vendor at least cares enough about their customers to make it look like they care.

Lastly, never forget that identity theft and credit card numbers are tasty targets for scammers. Protect them as much as you can by not signing up or registering for websites with your real name and address until you are actually ready to make a purchase. Whenever possible, use a temporary credit card number for all online transactions to avoid nasty surprises later.

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Online Bargains Aren't Always Great Deals Check The Details First originally published at Personal Finance Blog - FinanceGourmet.com