AskDong

The Gecko (image courtesy of Adweek) may be coming to town.  I got a letter from my insurance company, Amica, the other day. Apparently Masschusetts will be semi-deregulating auto insurance in April of this year. I knew there had been some talk about this last year, but I hadn’t really followed the matter. While this should be great boon to many drivers, it may not be for me.

While I’m supportive deregulation in general, and supportive of deregulating Massachusetts’s auto insurance, I’m not wholly wed to the idea that insurance is an industry that must be universally deregulated. There are many good reasons for the Government to have a hand in how insurance is operated which are due to the most fundamental nature of insurance. Insurance is about risk pooling, and works best when the pool is both large and diverse. Socialization is at the heart of insurance, and the Government, generally speaking, is the arm of socialization.

One of the biggest problems with light to no regulation with respect to insurance is that it allows insurance companies to excessively cherry pick it’s customers. When an insurance company only picks the best customers, i.e. customers who don’t make claims, it can make insurance prohibitively expensive or unavailable for the rest. In the world of Auto Insurance, this is not quite as a big of a deal as these high risk drivers are high risk because of their own bad choices. However, for example in the world of Health Insurance, without Government intervention who most need insurance could be put in position where they can’t afford insurance even when they can get it. Do we allow the “free market” behaveindiscriminately as to deny health coverage to the old, and or sick?

I’ve digressed since I think deregulation of Auto insurance in Massachusetts is a good thing. Hopefully we’ll have more insurance companies such as GEICO coming in and offering lower rates to good drivers. Where as with Health Insurance, I believe there needs to be some regulation to prevent too much discrimination of poor risks, the case to punish good drivers and reward bad drivers is much more valid. At the same time it can be taken too far. Given that auto insurance is required and that not insuring bad drivers would only add to the burden of good drivers, regulation is still required to ensure that everyone can buy insurance at reasonable rates. When someone drives without insurance everyone suffers.

So why do I think I might get hurt in all of this? My driving average is rather pedestrian. Not spectacular, but certainly not terrible either. Very average I Imagine. However, I live in a urban area, and urban areas tend to be more high risk. The last time the state allowed for competitive rates in 1977, rates skyrocketed for urban driver, and the state had quickly re-regulate.

I’ve talked in the past about earning more money. I’ve blogged about blogging, dividends, rental income, and getting a raise. What I haven’t explicitly talked about is what earning money really means. I’m a capitalist in the Adam Smith kind of way. I believe that capitalism adds value, and funadamentally we are only paid when we add value to the world. There are of course nasty externalities and market power problems that make capitalism not as straight forward as some would like to believe, but that’s a topic for another day.

Too often we approach a money making venture, be it our day jobs or be it our alternative incomes with a focus on the numbers. How much rent can I get? What’s the dividend yield. These are not the wrong questions to ask, but they may not be the questions that truly need answering. We I really should be asking myself is, “What value am I adding?”, “What value can I add that someone else can’t or doesn’t?” Being able to answer these questions is more important than figuring out what the payday is.

For example if I think I can make money picking stocks, I shouldn’t be worried about making 20%. I should be worried about what makes me more skilled at picking stocks. Do I understand the industry better than other people, and therefore can identify companies that the general populace doesn’t properly value? Am I skilled accountant who understands balance sheets and income statements far better than the average investor? Do I associate with CEOs and know which ones are principled and disciplined? When I take the time to answer those questions, I realize I don’t have very many of the necessary skills. And that’s why on the most part I try to avoid making individual stock picks.

The same principle can be applied more generally to any endevour. People who have successful careers are people add significant value in their work. In some cases as with a salesperson, this value is easy to discern and quantify. A good sales person sells more than his or her peers and that’s the value. However for most jobs, the distinction is harder to quantify. However, to be successful it’s not just about doing your job. Almost anyone can be trained to perform a given set of tasks. Succeeding is about creating value. Too often we think of our jobs as about finishing in assignment when we really should be thinking about new ideas. We live in society that rewards those who think of and implement new ideas.

I was listening to On Point with Tom Ashbrook talking about how young people are having kids later in life. I would fall in this demographic. I’m yet unmarried, and don’t have children. I just turned 32, and can’t imagine being a Dad until I’m at least 34. Apparently 52 percent of 1st time college educated mothers are over the age of thirty these days.

While the discussion centered around the debate if better or worse for parents to wait until they are older, many of the topics were centered around money. As is often the case many decision involving close relationships (in this case the creation of a child/parent relationship), money is important part of that relationship, especially in the case of children. There were arguments from both sides. A younger woman who decided wtih her husband to have kids earlier rather than later felt that their youth allowed them to be more flexible in spending. They were able to make do with IKEA and Craigslist for their furniture needs -furniture that doesn’t need to be protected from the destructive tendencies of most three year olds. On the other hand, many “older” parents are more mature and feel better prepared financially for the burden of children.

While older parents might be more financially secure, they are also likely to be more set in their ways. Older parents with years to spend money on themselves may find it harder to cut back than younger parents who never got used to spoiling themselves. Raising children is not easy and involves sacrifice. Is it easier tosacrifice at 25 or 35? I’m hoping it’s easier to make sacrifices at thirty five given that at this point in my life, I have no choice in the matter.

One the bigger issues embedded in the parenting question is a career dilemma Women are often unfairly put in situation of choosing between career and family. While the choice should apply equally to both men and women, more often than not it’s the woman who has to choose. Many woman feel that they have to delay starting a family in order to jump start a career. Interestingly one caller to the show, a young mother, thought she would have leg up because she would be ideally situated in her early thirties, finished with the most grueling years of parenting, when others would be pulled parenting needs. Yet, many parents feel like there’s no choice at all. Tom’s producer, Julie Diop, who was featured on the show spoke of her own situation. She’s a producer for public radio show, and her husband a private school teacher. Living in the costly northeast, it would be difficult for them to live on either income alone.

I was at Costco the other night, and ended up picking up a copy of TurboTax Premiere. I’ve been a user of TurboTax every year since 1999, and have owned Intuit stock since last year. Intuit’s Turbotax franchise is a cash cow. Every year, users buy another copy. There’s minimal software development year to year. I’ve been using it for 8 years, and the cosmetic changes are minimal. The more important part is incorporating changes to the tax code, and even there we’re not talking rocket science.

In the past I’ve purchased the Deluxe version, but this year I decided to go with the Premiere edition for an extra $20 or so. The Premiere version includes more features geared towards Rental Property owners and Investors. While I don’t consider myself much of either, I am at least technically both. Shelling out the extra money for a few more features seemed like a worthwhile experiment. Intuit offer 4 different version of TurboTax:

• Basic - If you’re doing pretty good with the 1040 EZ then I imagine the basic version is more than enough
• Deluxe - If you itemize your deductions, then Deluxe is probably the way to go
• Premiere - Some additional features for Investors (Better entry and tracking of cost basis) and Rental Property Owners (Depreciation)
• Home & Business - This version is for people who have their own business.

Originally I was going to download TurboTax as that was more convenient, and my cursory search online for a deal returned no stellar deals. However at Costco, I was pleasantly surprised to find TurboTax selling at price point that was better than anything I found online, about $20 cheaper than the listed prices at Intuit. I purchased Premiere for $54. Deluxe was being sold for about $31 or about $15 cheaper than list price.

I’m still waiting on a number of tax documents mostly from my banks and brokerages, but I’m hoping to be done with my taxes by mid February.

Last week American Express awarded me 15,000 Starwood points.  It seems I crossed over the magical 15,000 line. When I signed up for the American Express Starwood card 5 months ago, I was under the gun. I had to spend $15,000 in six months to qualify for 15,000 point bonus that American Express was offering.  American Express credited Starwood points as soon as I was over threshold.  I didn’t even know I had spent so much so quickly.

As result my Starwood Preferred Guest stands at a robust 37,000 points, and I have points pending from my last two statements. Right now, I can book 3 nights at the W in Los Angeles which is $365/night where I have wedding to go to. Those three nights would cost me over $1100 if I had to pay.  Not too shabby. However the real steal is going to Europe. I can book 3 nights in Amsterdam at the Meridien for the same number of points as the W in Los Angeles. The Meredien is 290 Euros/night. 290 Euros at the current exchange rate is $427.  As a result 3 nights at the Meridien would cost nearly $1280. Starwood has adjusted the point for room conversion rates by country as result, using point is great way to arbitrage the U.S. Dollar. Spend dollars, earn points, and redeem European hotels.

Even without the starwood bonus points, the last 5 months of spending on my credit card has been great. Not because I got a ton of stuff. I didn’t. I had few big ticket items that put me through.  The biggest being travel related expenses for travel companions that I helped book. My spending didn’t increase, but it became much more accountable. I’ve got to the ATM machine to get cash exactly two times in the last 5 months. I’ve gotten cash out from my friends when I’ve paid entire dinner bills. More importantly, I’ve used my credit card in situations where in the past I would’ve used cash. I used the Amex for fast food and lunch at the neighborhood deli.  I’ve used the credit card at the Drugstore when I was only picking up a soda. I used my credit card for almost everything, and it’s been fantastic.  The credit card company tracks my expenses much better than I could or would ever track my cash expenditures.