Dang it! My Car Insurance is Going Up

Remember last summer wehn I wrote about how my insurance agent set me up with a new auto insurance policy and that by doing so, I was going to save $800 per year? If not, you can read about it here. The only difference that I could tell between the new policy and my old policy was that the new one was a 6-month policy while the old policy was for one year.

I got my renewal in the mail this week. It looks like I’m going to have to give back some of that savings.

The renewal premium is $731, which is $84 more than my policy from 6 months ago. It doesn’t seem like that much of an increase but if they do this to me every six months, I ain’t gonna be happy! If I annualize the new premium, it makes premium $1,462 per year, which is still a lot cheaper than the old policy.

I asked the agent about this and she said that Travelers raised their rates and that my renewal reflected that. Now I know why the insurance company went with a 6-month policy! Every six months they have an opportunity to raise rates.

Question of the Day: Will the Fed’s Actions Work?

I’m confused.

I was under the impression that the Fed did not want to lower interest rates due to inflation fears. I guess those fears have taken a back seat to recession fears as the Fed has lowered rates by 1.25% within a week’s time.

QUESTION:

Do you think these interest rates cuts will prevent a recession?

I don’t see how they can work in the long run especially with the housing market the way it is. I think we have backed ourselves into a corner and the only way out is to let the markets do their thing. It’s not gonna be fun, but I think it is the only way.

Now, what are your thoughts?

UPDATE: I reworded my question because it was originally kind of vague.

2007 Was a Horrible, Horrible Year For Home Builders

After posting yesterday’s look at the Dow Jones Home Construction Index, I decided to take a look at the index’s 14 components. Here’s how each component performed in 2007:

Of course I’m not telling you anything that you didn’t already know. We all knew it was bad, I just didn’t know it was that bad. Standard Pacific was down nearly 90%! That’s amazing. Of course this could be the year that things turn around. As you can see from this graphic, almost all of the home builders are up so far this year:

However, with 2 years worth of homes in inventory (that’s a number that has been thrown around a lot lately) and a mass of foreclosures on the way, I wouldn’t expect a turnaround any time soon.

Could There Be a Link Between Foreclosures and Arson?

This MSN article investigates whether or not there’s a link betwen foreclosures and arson. The article doesn’t come to any meaningful conclusions but it does mention some troubling cases:

  • In Woodland Park, Colo., a homeowner was accused of burning his home just before he was evicted in a foreclosure action.
  • In Houston, a man was charged with faking a racial hate crime to cover arson at his home.
  • In Russellville, Ind., a woman was accused of trying to cash in on an insurance policy by offering her neighbor $5,000 to help torch her home and cover up the crime.
  • Moral issues aside, unless a person wants a prison roof over their head, they would have to be incredibly stupid to set fire to their house. It wouldn’t take a genius to be able to establish a connection between a distressed homeowner and a fire.

    Instead of setting fire to the place, consider the 9 options that Liz Pulliam Weston lays out in a recent article. Although foreclosure isn’t a very nice option, it’s not the end of the world.

    Checkout Dollar Frugal’s Insanely Massive Blogroll

    I have always wanted to create a blogroll list including links to each blog’s feed but never have gotten around to it. Anyway, now that Dollar Frugal has done it, I don’t need to worry about it. Check out Dollar Frugal’s Insanely Massive Blogroll. There’s probably more blogs there than you care to read, but there might be something new to check out.

    What’s Better Than A 20% Return?

    What could possibly be better than a 20% return on your money?? I’ll tell you, and it isn’t a gimmick.

    INVESTOR 1
    Investor 1 wants to do right by herself and her money. She’s worked hard to stash away $1000, and she’s determined to maximize her return. So over the course of a year she spends much of her time online researching stocks. She keeps up with all the news, trades often, and is alternately exhilerated and stressed with every volatile turn in the markets.

    She does well and earns a 20% return — even after taxes and all those trading fees! At the end of the year her $1000 has turned into $1200. She smiles and pats herself on the back. Then she flips on CNBC to see if she can pick up some tips on how to duplicate that return next year.

    INVESTOR 2
    Investor 2 also worked hard to stash away $1000. She too wants to do what’s best for her financial future by making that money grow as fast as possible. Therefore she sticks her $1000 in an index fund. She knows this will minimize fees and taxes and – more importantly – that she can just let that money sit there without having to spend a lot of time tracking the markets, trading stocks, or doing research.

    She’s diversified, and at the end of the year she has returned 8% on her money with little to no effort. She smiles, satisfied, and knows that over time she’ll probably end up averaging that return.

    AND THE WINNER IS…
    Investor 2! [trumpets blare] So wait–why is Investor 2 better off than Investor 1!? No, not because she’s taking the slow and steady route to win the race, and not because she appears to be more sensible than Investor 1 or because she better manages her time and values balance in her life (although those are all good reasons).

    Investor 2 wins simply because she ended the year with over $1,700 while Investor 2 only had $1200 in her account. “What?!” you cry. “But Investor 2 only made 8%; how can she end up with $1,700??–that’s a 70% return!” Good catch by you. I left out one detail: Investor 2 managed to put away an additional $50 a month during the course of the year. She used her extra time not to chase returns on the latest booming sector but rather to make lunches for work, learn to effectively grocery shop, mow her own lawn instead of pay the neighbor kid, and cook dinner more often.

    The Moral of the Story
    OK, so if she actually did all those things she could have saved a lot more than $50/mo. She could have spent all her free time playing Guitar Hero 3, but the point is that putting away more money is a whole lot more effective than trying to maximize your return.

    YOUR RETURN DOESN’T REALLY MATTER

    Caveat: Ok, so once you have over $1,000,000 in investments your return starts to matter–and at that point it matters a LOT. The difference between an 8% return and a 10% return is $20,000 a year when you have a million in the bank. But if you have $100,000 the difference is only $2,000.

    Sure, $2000 is a lot of money, but it’s only $166 a month. That’s not exactly worth paying expensive financial advisors, racking up trading commissions and taxes, or being chained to the Wall Street Journal and CNBC to track your bet-of-the-week.

    Why not just accept market returns, keep saving, and enjoy your life?

    More from Meg at The World of Wealth

    A Look at the Dow Jones Home Construction Index

    Check this out. It’s the annual returns of the Dow Jones Home Construction Index:

    Dow Jones Home Construction Index Returns

    The index is composed of the following 14 homebuilders:

    Company

    Index
    Weight
    (%)

    Beazer Homes USA Inc.

    1.34

    Centex Corp.

    13.49

    Champion Enterprises Inc.

    2.84

    D.R. Horton Inc.

    16.83

    Hovnanian Enterprises Inc. Cl A

    1.52

    KB Home

    7.73

    Lennar Corp. Cl A

    9.25

    M.D.C. Holdings Inc.

    5.86

    Meritage Homes Corp.

    1.10

    NVR Inc.

    10.91

    Pulte Homes Inc.

    11.25

    Ryland Group Inc.

    5.18

    Standard Pacific Corp.

    .92

    Toll Brothers Inc.

    11.80

    I never paid attention to the Dow Jones Home Construction Index until the housing industry blew up. Had I been tracking this index over the last several years, something would have really bugged me. Can you tell what it is? I’ll give you a hint:

    Dow Jones Home Construction Index Returns

    I’m not an expert on this kind of stuff, but I would think that whenever an index goes up over 95% in one year, it’s got to be an indication that something isn’t right. Of course bubbles are always hard to spot, which is evidenced by the fact that the index continued to go up in 2004 and 2005.

    Once again this only proves the power of diversification and asset allocation, which will help you ride out these bubbles.