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Auto Insurance: When Was The Last Time You Got A New Quote?

This is a topic that has been relevant in my life and also a recently asked question by a family member.  Am I paying too much for auto insurance?  If you haven’t received a new quote online recently, the answer is probably YES.

When I moved down to Texas, I found out auto insurance rates down there were higher than New York.  Needless to say, when we moved back to New York, I want to be paying the least amount possible, so I got a new quote online.  I knew the yearly payments would go down some because of location, but I now have a better policy (lower deductibles/higher liability limits) and reduced payments (from $1400/year to less than $1000/year).

Where to start?

The easiest way to get an instant quote is online.  You type in a few pieces of information about yourself, your car(s), driving history, location, current insurer, education, etc and the website will give a quote that you can customize to meet your needs.  Please make sure you are comparing apples-to-apples coverage between the different carrier to get an accurate comparison.

A good first stop is Insurance.com.  The website is an aggregator that pulls information from various insurance companies and provides the least expensive coverage for your needs.  Consider this a Google search for auto insurance.   This is a good method for most people that want a one stop quote.

Another option is to go to a few different individual insurers and see which policy is the least expensive. I chose this method myself, but Insurance.com should be fine as well.  A few companies to explore are Geico, Progressive, Esurance, AllState, etc.

If you do find a less expensive policy with the same coverage, you can start the new policy and cancel the old policy on the same day.  You will get a refund in the mail from your previous insurance policy for the pre-paid cost that was not used.   Insurance cards and documents can be printed from the Internet which will allow you to be up and running in no time.

So please take 10 minutes, and review your auto insurance policy.  You would be surprised at how much money you can save!

When is the last time you checked your auto insurance rates?  After reading this, were you able to save some money on your auto policy by getting a quick quote?  If you have questions on each part of the auto insurance policy, please ask! And it’s worth it….what if we had hail damage we need fixed?

One last note: I personally prefer a lower deductible for my auto insurance policies.  It may cost slightly more every year, but I would rather not have to write a large check on the same day that I get into an auto accident!   I also strongly recommend the addition of a rental car to your insurance policy if you do not have an alternative means of transportation.

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Golf and Investing

I know this might be hard to imagine for most of us golfers, but which of the following scenarios would you rather choose:

1.   Shooting par every time you go out and play a round of golf.

2.   Shooting below par 25% of the time you play and failing to reach par the remaining 75% of the time

 

It’s an easy decision, right?

The game of golf has many parallels to investing.  A score of par is similar to a stock index.  It is the base score everyone is trying to reach.

Continuously shooting par, similar to passive (index) investing, is what we do here at Rockbridge.  We try to control costs, manage risk and get as much return as the markets allow.  With index funds, you always get what you expect when it comes to returns and are left with no surprises.  It’s much like going out and shooting par every time you golf.  Basically, we help you avoid the double and triple bogeys that we are all too familiar with!

The other scenario is to strive for a score lower than par, which is similar to active investing.  You incur additional costs – Wall Street “experts”– in an attempt to beat the return produced by an index.  However, evidence shows that you will only be able to do so 25% of the time.  The remaining 75% of the time you will underperform; and to make matters worse, you will underperform by a much bigger margin than you will ever outperform!  This makes perfect sense.  When active managers continuously strive for outperformance, they must take additional risks which lead to mistakes.  No different than a golfer trying to make eagle on every hole.  He will find himself shooting much worse with that constant added pressure!

The situation only gets worse with time as well. Just like shooting a score below par gets harder as we age, your chances of beating index returns goes down drastically when you look at longer time periods.  Over extended periods of time, your probability of beating index returns falls into the single digits!  Larry Swedroe, in a recent CBS News article, goes on to state that this value is lower than what we would expect by sheer chance!  When most investors are saving for long-term goals, like retirement, those don’t seem like odds I would be willing to pay extra for!

So, if shooting consistent pars on the golf course sounds like the no-brainer choice, then why do so many people still engage in active management when it comes to investing?  In golf, spending additional time/money to improve your game might pay off in a lower score, but unfortunately this does not hold true when it comes to investing.  Control costs and shoot for par (index returns) and you will be much farther ahead in the long run.  Sometimes it takes a simple analogy to help lead us to making wiser and more prudent life decisions!

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2013 Rockbridge Survey and Company Updates

First and foremost, we would like to thank everyone who participated in our 2013 Client Survey.  We are constantly looking for ways to improve our business and services, and we greatly value your feedback.

For those of you who didn’t get an opportunity to take the survey, I will summarize the results of each of the three sections.  The full results of the survey can be found here: 2013 Client Survey Results.

Rockbridge Quarterly Performance Reports

The majority of survey participants responded that our quarterly statements contained the right amount of information without being overwhelming.

Client Communication Channels

In general, more and more clients are using electronic communications and social media (Facebook, LinkedIn, etc.).  We continue to spend a great deal of time updating and maintaining our website and blog to keep clients up to date.  Unfortunately, we have not made clients aware of the updates, so we plan on increasing that communication in the near future.

Rockbridge Growth

A majority of clients stated that Rockbridge’s most valuable service was to provide unbiased financial advice.  We were quite happy with this response as it is our primary goal as financial professionals.  The survey also showed that clients do recommend Rockbridge to friends, family and colleagues; however, explaining the benefits of Rockbridge can be difficult to describe.

Upcoming Actions

With the survey feedback, we are in the process of implementing a few improvements.

To help clients see all of our new website/blog content, we plan on starting a new monthly email with all Rockbridge updates and key articles.  With the relentless 24-hour financial news coverage, we hope to help clients sift through the noise and highlight the topics that are valuable and important.

We are also increasing our online and social media presence.  Starting in 2014, we will have a completely new website design with video to help clarify the benefits of Rockbridge to both current and future clients.  In addition, we plan on sharing all blog articles and Rockbridge updates on both Facebook and LinkedIn.   If you haven’t visited us online, here are links to our content.  Website, Facebook, and LinkedIn.  With electronic mail, our website and social media, we hope to increase our client engagement and improve our communication above and beyond the traditional paper mail statements, phone calls and in-person meetings.

Last but not least, we are growing and our current office location is no longer big enough to support our staff and clients.  We have signed a new lease for an office at 220 Warren St. which is a half block away from our current location.  We are extremely excited about our new location and will keep everyone up to date on the progress in the near future.  In addition, we felt that a new location goes along with a new logo.  A sneak peak of our new branding can be seen below.

Thank you again for your participation, and please feel free to contact us with additional ways we can make your experience with Rockbridge a better one!

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How Bad Was This Quarter for Bond Investors?

The benchmark bond index that we follow, Barclays U.S. Government/Credit Index, lost 2.5%, the worst quarter since 1994.  In fact the quarterly result has only been worse 8 times in the past 40+ years (162 quarters).

The Barclays U.S. TIPS Index had its worst quarter ever losing 7.1% (data only goes back to 1997).

Markets do not like surprises – even when the information is not really a surprise.  The financial media has dubbed it the Taper Tantrum, which started when Ben Bernanke came out of the Fed’s June meeting and said the Fed would taper its purchases of long-term bonds, if the economy continues to improve.  The so-called quantitative easing program was intended to hold down long-term interest rates to encourage investment, lending, and economic growth.

The market was surprised by Bernanke’s comments, and long-term interest rates immediately jumped.

Morningstar recently reported, “Over the past two-plus weeks, many bond investors have headed for the exits, on the heels of Federal Reserve Bank chairman Ben Bernanke disclosing plans to end quantitative easing.”  This suggests that market participants were assuming the Fed would continue its bond buying indefinitely.

Two things strike me as very ironic:

  1. The market was surprised to hear that something always considered a temporary measure, would eventually end… (when unemployment falls to a target of 6.5% and economic growth seems sustainable without the crutch of monetary policy).
  2. The prospect of improving unemployment and economic growth hammered both stock and bond investors at the end of June, contrary to an expectation that confirmation of economic improvement should be good for stocks.

There is little doubt that markets will continue to be volatile as the Fed proceeds to unwind the unprecedented monetary policy currently in place.  Market participants will try to predict what is going to happen (interest rates will rise – that’s easy); when it is going to happen (more difficult); and how to take advantage (approaching impossible).

There has been a general consensus that interest rates must rise since the Fed took short-term rates to zero at the end of 2008.  Since January 2009 the bond index has provided an annual return of 4.8%, including the most recent quarter, while money market funds and short-term CDs have provided almost no return.  Once again illustrating our long-held beliefs:

  • Markets work, and respond to new information.
  • Markets cannot be predicted.
  • Long-term investors must be willing to endure quarters like this and maintain the discipline of a long-term strategy that is consistent with their risk tolerance.
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Market Commentary July 2013

Volatility returned this quarter in both stocks and bonds as fears about the central-bank actions across the globe made investors nervous about the future.  Large Cap U.S. stocks, represented by the S&P 500 Index, returned 2.9% in the second quarter, bringing the year-to-date return up to a lofty 14.0%.  By contrast, the EAFE Index, a measure of developed international markets, lost 1.0% in the quarter, bringing the year-to-date return down to 4.0%.  In fact, as shown in the graph at right, no other asset class comes even close to the return on U.S. stocks so far this year.

Bonds
The Barclays U.S. Government/Credit Index had a negative return of 2.5% for the quarter.  Bond returns move in the opposite direction of interest rates.  The yield on the 10-year Treasury moved from 1.6% at the beginning of May all the way to 2.6% in June, before pulling back slightly to end the quarter around 2.5%.  The increase in interest rates was the cause of the negative bond returns for the quarter.

Bond markets were hammered after Fed Chairman Ben Bernanke announced last month that the bank may start winding down its bond-buying programs.  The Fed policy of buying bonds to keep interest rates artificially low was intended to spur the economy and reduce unemployment.  Many economists came out against the policy fearing a dramatic increase in inflation.  However, inflation has been quite modest and the market expectation for future inflation is quite low.  While the Fed policy continues to be controversial, the unemployment rate has fallen to 7.6% as of the end of May 2013.

We still expect challenges ahead for the bond market as interest rates rise.  However, we cannot predict when and by how much rates will rise in the future.  Therefore, we continue to advocate holding high quality bonds in a portfolio.  Bonds dampen volatility of a diversified portfolio while also providing income over a long investment time horizon.

Other Asset Classes
Emerging Market stocks continued their year-long decline, reporting a negative return of 8.0% for the quarter.  Global uncertainty in these young volatile markets likely fueled the sell-off in emerging market stocks.  The Dow Jones REIT Index, a measure of the U.S. real estate market, also reported a negative return of 1.3% for the quarter but was positive year-to-date with a return over the last 6 months of 5.7%.  Emerging Market stocks and REITs continue to offer investors diversification benefits in global portfolio construction.

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