History of Dead US Auto Makers

Yesterday there was news that the government did not accept the turnaround plans of GM & Chrysler. The CEO of GM was ousted. Chrylser is being pushed to merge with Fiat of Italy (apparently the only interested party). Bankruptcy is possible for both GM & Chrysler.

If GM or Chrysler go bankrupt or otherwise ceases to exist as a separate company it could have a large impact to our economy in the short term. But the death of either auto maker will by no means be an unprecedented event. Various brands have come and gone over the decades.

With this news I thought it would be interesting to look at the defunct and dead car manufacturers of America. I found the article Famous Defunct Auto Brands fr0m Businessweek. They list over two dozen auto brands that have died out over the years.

Brands that ended up dying in Chrysler

A lot of the old brands ended up as part of Chrysler. If Chrysler dies then their 'legacy' will die along with it. Several of which were part of AMC at one point.

Hudson 1909-1954 - 3rd largest in 1925, merged into AMC in 1954
Nash Motors 1916-1938, 1938-1954 - merged into AMC
Willys-Overland Motors 1908-1963 - turned into Jeep, bought by AMC
AMC - American Motors Corp. 1954-1987 - bought by Chrysler to obtain Jeep
Eagle 1988-1998 - remains of AMC at Chrysler, later killed
Desoto 1928-1961 - sub brand of Chrysler killed off.
Plymouth 1928-2001 - phased out Chrysler brand


Old GM brands phased out

Only a handful of old GM brands have been phased out:

Geo 1988-1998
Oldsmobile 1897-2004
LaSalle 1927-1940

Killed by Depression

Not surprisingly, a large number of auto makers died during or shortly after the great depression. Most of us won't recognize any of these brands unless you're a fan of auto museums.

Auburn Automobile Co. 1900 - 1936
Cord 1929-1932, 1936-1937
Duesenberg 1913-1937
Essex 1918-1932 (Hudson subbrand phased out)
Jordan Motor Car 1916-1931
Peerless Motor Co 1889-1931
Pierce Arrow 1901-1938
REO Motor Car 1905-1936
Stutz motor Co. 1911-1935
Terraplane 1932-1939

Met their own deaths

A number of other makers simply went under for various other reasons over the decades.

Checker Motors Corp. 1922-1982 ( anti-trust suit by NY state)
Hupp Motor Co. 1909-1940
Packard 1899-1958
Stanley Motor Carriage 1902-1927 (steam engine became obsolete)
Studebaker Corp 1852-1967 (bought by Packard in '54)
Tucker 1948-1949



Photos of AMC Gremlin and Duesenberg replica by dave_7

Federal Debt versus Tax rates

I've heard a few people speculating that our rising national debt will inevitably cause our tax rates to go up. That seems to make sense doesn't it? I mean we can't keep piling up debt and then somehow magically not have to pay it back sooner or later. So it seems obvious that taxes could rise in the future in order to pay that debt. But taxes won't necessarily go up as a reflection of our national debt.

There are 2 major factors that work for us as far as the future of the national debt: Inflation & Growth.

Inflation. Over time inflation will make the amount of debt we have seem like smaller figure. As an example look at the debt we had as a nation after WW2. Back in 1946 our national debt was about $271B. That doesn't seem like all that much right now does it? Our debt sits at over $10 Trillion and counting. So the amount from 1946 is tiny by comparison. But back in 1946 that $271B was over 120% of our total GDP. So relatively speaking the national debt was higher then than it is now.

Growing population base. As years go by our population grows and that means there are more and more people to spread the debt over. Lets look again at the debt after WWII. In 1946 the national debt was $271B and there were about 141 million people in the country. So that equates to $1921 per capita. Today there are over 300 million people. If we'd held that $271B for 63 years and did nothing but pay interest then it would be only $903 per capita.

You could compare the national debt to paying off a home mortgage. You make payments for 30 years. The payments are fixed so over time as inflation increases prices the amount of our payment feels like less and less every year. Plus the size of our national household is growing so there are more and more people to help contribute to paying the debt.

Another piece of good evidence that tax rates won't necessarily go up in the future due to our national debt is that taxes haven't reflected our debt in the past. There isn't a direct correlation between the two. Simply looking at how middle class tax rates and national debt side by side over the past 60 or so years. The other day I talked about the marginal tax rate for median income levels. If you take that data and show it compared to the national debt as a % of GDP you can see it here from 1947 to around 2008:


As you can see there is pretty much no direct correlation between middle class tax rates and the national debt. The national debt as a % of GDP has gone up and down and up over the decades but the middle class marginal tax level has not gone up or down proportionally. The tax rates have remained relatively flat over the decades staying in a range between 15-28%.

I don't think there is any particular reason to think simply because our debt is going up that this will inevitably cause tax rates to increase in the future.

I got the debt as % of GDP figures from Table 7.1 in the Historical Tables document from the Whitehouse.Gov site. I'm only showing the actual figures for the debt up through 2007 and I'm not including the estimated figures or most recent #'s.

Histry of marginal tax rate at Median family income level

The other day I talked about the history of the maximum tax levels. While its interesting to see how tax rates changed over the decades for people making incomes in the highest bracket that information doesn't apply to most of us. Most of us will never hit the highest tax bracket. Most of us make average income levels. For most people it is more relevant to see what tax bracket the median income level fell into. So for example today the median family income level is around $60,000 and at that income level your marginal tax bracket is 15%. By comparison 10 years ago if you were at the median level your family income would have been about $46,000 and your marginal rate would have been 28%.

Here is a graph of the marginal tax rate for median family income level from 1947 to 2006:


Historically the marginal tax rate has bounced around in the 20-28% range but right now people at median income levels are only at 15%.

Historic tax rates are from the Tax Foundation. I used the family income levels from this census page.

Best of blog posts for week of March 27th

FMF discusses Financial Planning for Pet Heathcare Costs: Start a Savings Account Now!
The main suggestion is to set aside some money on a regular basis to build up an emergency fund just for vet bills. This is an alternative to pet insurance that I've thought of myself.

JD at Get Rich Slowly looks at How Much Do You Need to Save for Retirement? In the post he links to several retirement calculators.

My Money Blog talks about potentially moving to Austin Save Money on Housing: Move To a Lower Cost-of-Living Location… Like Austin, Texas?

History of Income Tax on High Incomes

Recently our congress has talked about a 90% "punitive" tax rate on the bonuses received by some AIG employees. 90% tax rate seems absurd. But did you know that as recent as 50 years ago we had a 91% tax bracket for high income levels? Our current maximum tax rates of 35% seems high now but imagine paying 91% marginal taxes. Before you blow a gasket over the thought of paying 91% of your income to the IRS, realize that that bracket only applied to the top amount of income. And at the time the bracket started at $200,000 when typical median income was less than $5000. But its still a very high tax rate even if it just applies to the very rich. So very few people actually paid such high tax rates.

The Tax Foundation has a document with a history of all the income tax rates from 1913 to 2009.

I pulled out just the maximum tax bracket for joint / married filers. Here is how it looks for the period 1942 to 2009:

As you can see, the maximum tax rate has been decreasing in steps over the decades.

Now keep in mind that these maximum tax brackets were only paid on the highest margin of taxes. This would generally only include the top 1-2% of tax filers. But while the max rate changed over years the income thresholds also changed. We can also look at the maximum tax rate versus the income level that it applies to.

For this kind of information to make more sense we'd have to adjust the income levels to current values.

If we look at the income figures adjusted with CPI data then it looks more like this:

Looking at the previous table you can see that in 1957 the highest tax bracket was 91% on people making over $400,000. But that $400,000 in 1957 dollars equates to about $3 million in 2008 dollars.

In the past 20 years the maximum rates have and the income levels they apply to have been relatively flat. The maximum rates have been in the 30-40% range and applied to income levels equivalent to over $300,000 levels.

When to self insure

For many things buying insurance from an insurance company is your wisest financial move. Home insurance, life insurance, health insurance and auto liability insurance are best to buy insurance coverage for. Very few of us can afford the large potential out of pocket expenses for the costs from major events like a home fire or a hospital stay. If you don't have insurance for these things you're likely running the risk of financial disaster. Proper insurance can guard you against ruin in the event of a disaster. But you don't have to buy insurance from a third party insurance company for everything. For some things it is OK to self insure.

Self insurance is where you maintain sufficient financial ability to pay for a problem out of your own pocket. You may not realize it but you self insure many things. Virtually all low cost items are self insured. You don't have insurance against a broken pencil or a ripped shirt. That choice is simple since those items are cheap and easy to afford replacing out of pocket. As the potential bill increases it makes more sense to get insurance to cover the costs.

The things to look at if you are considering self insuring involve both the consequences and the costs. You could look at this as making two key decisions: Do you care? and Can you afford it?

First consider the consequences.

Can you do without the item or service?
What is the worst case if a problem arises?

If the consequences of a potential disaster are not too significant then you can likely do without insurance altogether. Say for example you have a second car and it is owned free of a loan. If the car is old enough you might do without comprehensive insurance. If you then get in an accident that is your fault you may have to do without a second car. The consequence of this disaster is not very significant either financially or in terms of impact to your life. On the other hand if you are considering going without long term disability insurance then the worst case scenario would potentially leave you and your family financially destitute. So it comes down to basically answering the question : Do you care? For example, do you care if your second car sits idle? Maybe not. Do you care if you go bankrupt due to medical bills from emergency surgery? Almost certainly you would.

Second consider the costs.

What is the maximum liability involved?
How likely is it that the cost will occur?
What is the cost of buying insurance from a third party?
What are is your emergency fund balance and total assets?

If the maximum liability from a problem is very high then it is not usually a good candidate for self insurance. If there is no possible way you could afford the costs out of pocket then its something you should really consider buying insurance for. But you should also look at how likely the event might be. Buying flood insurance when you are very far from water may not be necessary. But if you are on a river bank then flood insurance is probably a good purchase. Once you've decided if the insurance is something worth getting and something you can possibly afford out of pocket then you should consider the cost of self insuring versus the cost of buying insurance. Just because you can afford to self insure doesn't mean its necessarily the best option.

Evaluating the cost of insurance:

One way to look at the cost of buying insurance is to compare how much you would be paying in insurance bills versus the average cost of going without the insurance. First figure the likely costs of the disasters for a one year period. TO do this find the probability of the cost being incurred and multiply it by the average cost. For example if its 10% likely that you may have an auto accident in any given year, and if the average cost of an accident is $10,000 then we can estimate that the average annual cost is going to be $1000. If your auto insurance policy costs significantly more than $1000 then it may not be a particularly good buy.

Adding it all up:

First determine if the event is significant enough for you to care about. Some losses are not large enough or impactful enough to bother worrying about insurance against.

Second figure if its feasible for you to self insure or not. If you have emergency fund or assets capable of handling the cost then self insurance might be an option for you.

Third compare the costs of buying insurance to handling the cost out of pocket.

Lets look at a couple examples.

Pet insurance: I've talked about pet insurance in the past and I've generally concluded the insurance is not a good buy. If you look at specific numbers: I could get a pet insurance policy for my cat for around $120 a year. On the other hand the average vet expenses in America are about $80 a year. The maximum amount I'd end up paying for a vet bill is something I could handle out of pocket. In this case self insurance is a pretty good option.

Long Term Disability: If I were to become disabled and not able to perform my job then we would be out our primary income generator. Our total assets are not quite enough to cover this cost. This example is something that is very important and also something I can't quite handle self insuring. The risks are not extremely high, but the negative consequences are quite high. I could take the risk and try to self insure against the likelihood but it would be risky to do so.

Self insurance can be a feasible option for certain things. The exact answer will depend on your financial circumstances and the potential impact of an event or loss.

Restaurant.com $25 certificate for $3 until March 31st

Save 70% Off with every order of $25 Gift Certificates. Use code SAVE and pay $3 thru 3/31/09.



Info on Restaurant.com certificates:

I have used these at my steak house in the past and they worked great. Unfortunately though the steak house stopped taking the certificates. If you're interested in getting a certificate then first check the Restaurant.com site and see what restaurants in your area take the certificates. Second be sure to check out the rules and limitations for the gift certificates. For example a restaurant may require a minimum purchase of $50 to use the $25 certificate and a mandatory 18% gratuity. The rules differ for each restaurant so pay close attention to them. Lastly I wouldn't recommend buying them unless you plan to use them shortly. The restaurants that accept the certificates can change over time.


For more on saving money at restaurants see my older posts:

• Saving at restaurants #1- discount programs
• Saving at restaurants #2- birthday & email club discounts
• Saving at Restaurants #3 - using gift cards
• Saving at restaurants #4 - general frugality

When it makes sense to hire an expert versus do-it-yourself

Generally I try and do work around the house myself to save money. Usually doing the work yourself is the best choice financially but sometimes hiring someone can be the smarter choice. Do It Yourself (DIY) can end up costing you more in time, equipment and materials then what you originally thought to make it simply not worth it. If we try DIY we can sometimes bite off more than we can chew and end up botching the work and even making it worse. There are other benefits in quality and expertise that you can get from hiring a professional.

I have actually caught myself wasting money by going the DIY route. The best example I have of DIY being wasteful in my personal life is some work we were doing on a rental. My wife and I had a bit of work to do to clean up a rental. We did all the work ourselves to save the hundreds of dollars we'd have to spend to hire it done. But we didn't have enough time to get the work done in a timely manner so we ended up losing rental income while the place was vacant. In the end we lost money over all. The lost rent was more than the savings from our DIY work. Of course this isn't too typical since most people are not risking lost profits or income when considering DIY work.

Below are some things to consider to help you decide between DIY or hiring a pro.

When DIY might make sense:

1. If you are able to do the work or able to learn how relatively easy. - If you know you can do it then its a prime target for DIY. Electricians should fix their own light switches and CPAs should do their own taxes.
2. If the problem is simple enough that you know you can handle it. - Relatively easy tasks are good targets for DIY savings.
   
3. When the cost of hiring someone is significantly greater than the costs of DIY.
4. If you enjoy it. - Putting cost savings aside, if you enjoy doing something then that is reason enough. Many people like working in their gardens and thats a good reason not to hire landscapers.

When to hire an expert:

1. If health or safety are major concerns. - Most people should probably avoid roof repairs. DIY surgery is stupid.
2. When expert knowledge will save money. - If a CPA's expert knowledge of the tax codes will save you extra on your taxes then paying them is worth the cost.
3. If you simply don't have the time to do it yourself. - Stuff needs to get fixed and if you don't have the time to do it then hiring someone is better choice then losing wages from lost work or neglecting your personal life.
4. Work that requires expensive tools or equipment that you'd have to buy or rent. -
5. If profits are on the line and time saved through hiring the work will save you money. - My rental is a good example of this. Every day wasted costs money so paying people can save me costs in the end.
6. If expert level quality is important. - Hiring a professional photographer for wedding pictures or a professional carpenter to build new kitchen cabinets can be worth the cost if the improved quality of work matters to you.
7. You're simply unable to do it yourself - We should all know our limitations. Some things we're just not going to be able to figure out ourselves.
   

Deciding whether DIY or hiring a professional is the right choice will always depend on the specific situation. Theres no blanket answer for any given kind of work. We all have different aptitudes and skills so if one thing makes sense for me to do it might not make sense for another person to do and vice versa.

The important thing is to consider all the factors involved. Don't try to do everything yourself without considering the potential benefits of hiring help or the potential negatives of DIY work. You should also know when DIY is a good choice as far as time and money savings.

Government "Making Home Affordable" website

As part of the new initiatives to help homeowners with mortgages they can't pay the government has launched a website Making Home Affordable.

The site has some basic info on the programs and who can qualify.

In short there are 2 programs: refinancing and modification. Below are basics on the programs. For both of these the home has to be your primary residence.

Refinancing:

To be eligible:
Your loan is guaranteed by FannieMae & Fredie Mac.
You are current on your payments
Your mortgage isn't significantly more than what the home is worth.
LTV (loan to value) not to exceed 105%.

You get refinanced at a 30 year fixed mortgage at prevailing rates at around 5%. This type of situation is for people who can generally afford their home but maybe they've got an ARM coming due or otherwise need/want to refinance. But they might not be able to refinance if they are at a high LTV (loan to value) ratio, or in other words they have low equity.

Modification:

This is for people having real troubles. They have difficulty paying their mortgage payments or are already behind on payments. Their mortgage is over 31% of their income.

With modification you can get your mortgage interest rate dropped as low as 2% temporarily and then up to 5% level later and they can extend the loan to 40 years. There are also incentives to pay the borrower and lender.

Best of blog posts for week of March 20th

Consumerism Commentary discusses how an emergency fund can benefit you in more than the obvious way with New Study Outlines Importance of an Emergency Fund

The Wallet at WSJ discusses a study that finds Carrying Bigger Bills? You’re Less Likely to Spend Them, Research Finds Sounds right to me. I don't like to break a $100 but using a $20 raises no qualms.

AIG bonuses aren't that big of a deal

I'm going to take a devils advocate stance on this topic and say: AIG bonuses aren't that big of a deal.

On the face of it the bonuses seem outrageous. How dare they give out MILLIONS in bonuses while the company is bleeding money and taking a government handout!?

The bonuses have had a ton of press in the past couple days and theres lots of politicians angry over it. ITs warranted anger for sure, but focusing on these bonuses isn't going to get us anywhere.

While I don't think throwing $165M in bonuses at people who don't deserve it I also think these bonuses are not that big of a deal in the grand scheme of things. Theres some good reasons why its not that big of a deal...


1. The amount of the bonuses are almost TRIVIAL compared to the amount of money we've pumped into AIG.

Lets look at a bar graph showing the $165M in bonuses versus the $180B in federal aid to AIG:



Whats that you say, you can't even see the bonuses? Trust me its there. The bonuses are just so small compared to the total $180B in bailout funds that its not even visible when put in that scale.

What did AIG do with that $180B? We barely know. Yet we find out what they did with $165M and we all spend half a day venting about it. Lets keep things in perspective folks.


2. The bonuses aren't that much compared to total AIG employee compensation. Lets all keep in mind that AIG is a big company and they employ about 116,000 people. They do have to pay those people still to keep the company functioning. If we assume that the average pay is $50,000 per person then thats $5.8 billion in wages annually.

Comparing the $165M in bonus money versus total AIG wages:


This time we can at least SEE the bonuses versus the pay rate.

I'm only estimating the pay levels at AIG. I'm pretty sure that this estimate is in the right ballpark though. I tried skimming AIG's 2007 annual report for information on their payroll expenses but I came up empty there. I looked at Glassdoor.com and found some salary info for AIG employees and it ranged from under $40k at the low end to well over $200k at the high end. If anyone has data on total wages paid by AIG please let me know.

3. Bonuses are a normal part of pay.

At AIG and many other large companies the bonuses paid to employees annually are a normal and standard part of compensation. If dig a little more into the compensation reports on Glassdoor.com for AIG you can see that most people there got cash bonuses. Usually the bonuses ranged 2-10% of the pay. Upper executives had higher bonuses rates of 15-20% of their total. At my job everyone gets annual bonuses and they e

4. The bonuses were part of an existing contract.

The actual retention bonus contract is posted at the US House site. Note that the contract went into effect December 1 2007. SO its not as if this bonus was slipped in at the last moment after the fact. Its a long standing agreement and a contractual obligation by the company to pay it.


To sum up: The bonuses aren't that big of a deal.

I don't think the bonuses are exactly warranted or fair. But a lot of time work for pay isn't fair. I'm sure you've got a coworker who barely shows up yet still gets paid for it. Thats not fair, but it happens. The employer can hardly demand a refund. The government could actually tax the bonuses or do other things to recover some of that money. I'd really like to see the government should sue the executives at AIG who are responsible for the failures to recover any money they can.

I think we should all be 1000 more annoyed that the government had to pump $180B of our money into AIG in the first place. AIG as a company needs to die. It should be cut up into pieces and sold off. But lets quit venting about the $165M in bonus money. Thats just a drop in the bucket.

Entertaiment coupon book for $12.50 plus a $6 rebate from Ebates

You can get the 2009 Entertainment Coupon books for 50% off at their website. That makes the price $12.50. Plus Ebates has a $6 rebate on the Entertainment coupon book. If you combine the 50% off price plus the $6 rebate then you can get an Entrainment book for just $6.50.

If you're not familiar with these two companies.. The Entertainment coupon book has dozens of coupons for discounts at local restaurants, travel, and other goods and services. You can easily save several times the cost of the book by using their coupons. Ebates gives you a kickback on purchases you make through online merchants that they refer you to. Usual discounts are in the 1-3% range but some can be up around 8%.

Bank failures per month in Jan 2008 to Mar 2009

Yesterday I showed the rate of bank failures from 1980 to 2009. Today I'll look at the failures in 2008 & 2009 per month.

You can find information on bank failures at FDIC's page on Historical Statistics on Banking.

I pulled the information on the bank failure & assistance transactions for 2008 & 2009. Here is a chart showing the monthly trend:
From July 2008 to February 2009 it looked like bank failures might be increasing. But so far in March 2009 we've only had 1 failure. That could be a good sign.

Bank failures from 1980 to 2009

A lot of people seem worried about bank failures and the FDIC. There have been a few bank failures in the past year or two that have gotten a lot of press and raised concerns.. With the situation of the banking industry there are some grave predictions that many more banks will fail. I always like to look back at history so we can keep things in perspective. Today I'll look at the # of bank failures from 1980 to today.

You can find information on bank failures at FDIC's page on Historical Statistics on Banking.

I pulled the information on the bank failure & assistance transactions from 1980 to 2009. Here is how it looks graphically:


Of course 2009 only covers through today so its a partial year.

As you can see the rate of bank failures in this decade is relatively small compared to the fallout from the S&L crisis in the 80's and 90's.

In most cases the failed bank was taken over by another bank. Only rarely does the FDIC have to completely take over the bank and liquidate. I'm not sure exactly what the difference between a "failure" and an "assistance" are so some of these might not be outright failures.

Should you get a new toilet to save money?

It might seem odd to think that a new toilet could save you money but it can. Every time you flush your toilet you're spending money on water. The cost of the water used isn't that much per flush really but it adds up over time. Plus of course you are wasting water which can be a big problem in areas with water shortages.

I've talked about EnergyStar in the past. EnergyStar is probably familiar to most people and its the EPA's program to test and label appliances that are energy saving. But I just heard about another program that the EPA has called WaterSense. The WaterSense program does the same thing but for water savings.

An EPA WaterSense toilet is a toilet which uses 1.28 gallons per flush (gpf) or less. Normal toilets sold today use 1.6 gpf.

You can get a WaterSense listed toilet at Home Depot for prices in the $100-$150 range or more. So the prices for the high efficiency toilets are not much more than a regular 1.6 gpf toilet. If you're going to upgrade the toilet then you may as well look for a WaterSense product since the costs aren't much different and they are 20% more efficient.

The Watersense site has a calculator you can use to see how much money you'd save by installing a newer toilet. Keep in mind that the calculator isn't exact since they use assumptions with estimates for the savings and cost of the water. Your toilet may use more or less water than they assume and your water costs may be lower or higher than they assume. They are assuming water cost of about $6/ 1000 gallons and thats a lot more than my utility charges. Here our water is $1-$2 / 748 gallons. So the calculator is about 3 times more. To get a more exact figure I'd recommend you check your water bill to figure your actual water cost per additional gallon used.

Looking at some examples: 1) Say you have a 20 year old home with original toilets and 4 people live there. The calculator says that you'll save $99 in one year and conserve 16,000 gallons of water. 2) If you're a single person in an older home with a 30+ year old toilet then you could save $14 a year and conserve 6,900 gallons. 3) Consider two people living in a house built in 1985 with original toilets. They could save $50 a year and conserve 8,200 gallons of water.

Generally the older toilet is then the more worthwhile replacement will be. If your toilet was made after 1994 then it is already a 1.6 gpf model. That means you'll save a lot less by switching over to Watersense. But if your toilet is over 15 years old then it is likely worth the cost to switch to new Watersense toilet.

One major consideration to keep in mind is the number of toilets you'd have to replace. The calculator is figuring the savings based on replacing ALL of the toilets in your home. So it is going to be more expensive and less ROI if your home has more bathrooms. For example in my home the calculator says I'll save $50 a year by getting new toilets but we have 2 bathrooms so our cost would be over $200 for the toilets. Your payback period would be over 4 years. If we only had one bathroom then the payback period would be just 2 years.

I'm guessing most homes have 2 toilets so I could estimate replacement cost would be around $300. If your toilets are at least 15 years 0ld and you have the national average of 2.6 people in the home then your savings will be around $64 for a year. This mans your payback period is less than 5 years.

If your current toilet is at least 15 years old and theres 2 or more people in your home then its probably a good investment to install new water saving toilets.

Updown performance 12 months total -33%

I've been playing on UpDown now for nearly 12 months now. I first started in March 21 of 2008. As of March 11th my total return for nearly 12 months is -33%.

Losing 1/3 of my money doesn't sound like very good performance but keep in mind that the stock markets as a whole are down significantly for the past 12 months. By comparison the S&P 500 is down -45%. The Dow lost -44% and the NASDAQ lost -39%. The Wilshire 5000 is off -44%. I'm doing better than the major indexes by 6-12%.

How am I doing compared to actively managed mutual funds?

It only makes sense to compare apples to apples so I'm going to compare to funds that invest primarily in equities in the US. My Updown portfolio is in US stocks.

Using the custom mutual fund screen on CNBC, I search with the settings: Asset class = Equities, Less than 10% foreign, Less than 1% front or back end load and less than 1% management fees.

Since I had -33% return I'll see how many funds did better and worse than me. The results for the screen are:

Greater than -33% return = 171 funds
Less than -33% return = 1191 funds

So for the funds that invest in US Equities, my performance of -33% beat 87.5% of the actively managed funds with comparable asset US Equity class and low or no commissions.

I specifically only looked at US Equity funds to get an apples to apples comparison. It doesn't make sense to compare my performance to fixed income or emerging market stocks. But just for reference sake I can do that too. If you look at ALL equity funds then 842 funds had performance of greater than -33% and 10,112 funds were worse than -33%. Out of all equity funds only 8% beat my performance. But this is including many foreign emerging market funds with higher risks and rewards. If you look at all funds including fixed income, blend and equity then 6,600 beat my -33% and 11,614 were worse. So for all funds in any asset class I beat 64% of them. However this compares my performance buying stocks to the performance of fixed income funds.

My fees were relatively small. Basically when you're managing your own portfolio your fees are what you pay to buy/sell stock and anything else that you pay in fees to the broker. I've made about 60 trades in the past year and Updown charges $100 per trade. SO thats a cost of $6000 for the $1,000,000. That is a 0.6% expense ratio. Now the $100 per trade cost and the $1M assets are fictional and not really something I'd compare to real life. If I was investing a much lower amount of money then 60 trades would be too much because the fees would pile up to be a high % of the assets.. But lets say I had $100k to invest and I used Scottrade to do it where trades are $7 each. That would be 60 trades x $7 for a cost of $420. That would equal 0.4% of $100k assets which is more realistic I'd say. Realistically my expected fee expense rate for self managed portfolio of individual stocks is below 1%. This holds true as long as the assets are large enough. If you only have a few thousand in your account then you don't want to be making 60 trades a year. If I had $10,000 in my IRA and made 60 trades with Scottrade then that would give me a 4.2% fee ratio.


What does all this mean?

To be honest you can't take a lot away from this.

My playing with stocks on UpDown only represents 12 months of performance. Thats not really much of a track history. What if I just got lucky this past 12 months with a few trades? What if one of the major holdings in my account goes bankrupt tomorrow? Maybe I'm just doing better right now cause I have more conservative style and if we return to a bull market my performance will be less than most funds. To have a good idea of how well I could do I'd have to have a long term established track history of several years. If I can beat the funds and indexes by 10% or more for several years in a row then that will start to mean something.

Another thing to keep in mind is that UpDown is simply a game. I know for a fact that I will play a game a lot differently than I would spend my own money. If I were investing $1,000,000 of my own money I would most likely be a lot more conservative with the investments.

To sum up, I think a years worth of performance on UpDown has shown that I'm OK at stock picking so far. But to get anything meaningful out of this game I'll have to play it for several years.

Best of Blog posts for the week March 13th

JD at Get Rich Slowly shares 25 Useful Financial Rules of Thumb

I love pretty charts. Here is a nice one from My Money Blog Chart: Historical Stock Market Comebacks After Crashes

Free copy of "The Difference" by Jean Chatzky

You can get a FREE copy of The Difference by Jean Chatzky. You can get the book courtesy of Oprah.com.

The Oprah site says the following about The Difference :

What can The Difference teach you?

• The top five things you can do to not just survive but thrive during tough times
  
• The eight things that make The Difference (i.e., the key traits and abilities of people who describe themselves as financially free)
  
• Advice for those having job insecurity as well as strategies for finding a job
  
• Why money doesn't breed happiness—but happiness can breed money
  
• The direct connection between The Difference and your health
  
• How people who know The Difference make a difference for others
  
• Myths and facts about the wealthy

I heard about this from Happy Money Medium's article that I found on PFblogs.

Am I the Wealthiest personal finance blogger?

That title isn't a serious question. I know I'm not.

The blog Suburban Dollar wrote Sunday’s Sites - The Wealthy Blogger Addition They have put together a list of net worth figures for personal finance bloggers and I have the highest total.

I am certain that I'm not actually the wealthiest personal finance blogger. There are undoubtedly some folks out there with higher net worth who either weren't found by Suburban Dollar or simply don't publish their net worth.

Still its interesting to see how high I come out on that group. What does it mean that I have a relatively high net worth? Not a whole lot. It doesn't mean I'm an expert or anything like that.

I don't know if you can even get any usable lessons from my success. Most of my net worth is from real estate and retirement savings. I don't think my real estate success can easily be emulated for most people in most markets. Real estate is very local business and every state and city has different market. I am lucky that the real estate market in my area has not lost nearly as much value as most of the country has seen. Of course this is not to say I don't think real estate can be a very good investment. One key in my success is that I'm not leveraged much at all. We own a couple properties outright and have about 50% equity in another. One of our rentals is near a 100% LTV (in other words theres no equity). If you were highly leveraged in real estate recently you could be in very big trouble right now. We've avoided being hurt severely by the real estate downturn by keeping our leverage low. The other key reason for my high net worth is that I have a very good paying job. I owe my high income to my education. Stay in school kids.

Am I rich? Yes I think I am rich. I think that virtually all Americans are rich by global standards. Its important to step back and realize how good you actually have things. TO see how your income level compares to the rest of the world, check out the Global Rich List. My income level puts me in the top 1% of the world. If you are a single person at the federal poverty level of $10,400 income for 2008 then that would put you ahead of 86% of the world.

1 year anniversary of FreeBy50

The 1 year anniversary of this blog slipped by yesterday without me realizing.

Free By 50 is officially one year old!

U.S. auto workers do NOT make as much as we've been led to believe

Just now on Yahoo news they featured a headline from Reuters Ford-UAW deal cuts wages to $55 an hour. Wow, $55 an hour is a pretty high wage, eh? Well if you read the actual article they then say 'Ford said the agreement would trim its average wages for the 42,000 workers covered under the contract, including the value of benefits, to about $55 per hour this year, ...." So its not actually hourly pay that is $55, its pay + benefits. When someone asks you how much you make "an hour" do you include the cost of your employer provided health care benefits, retirement plan or other benefits? No of course you don't. But every time it seems we hear a figure about how much the US auto makers pay their employees the number includes benefits.

Not only do the figures we hear include benefits paid to the workers it also includes the total cost of benefits paid to retired workers. If I ask you how much you make "an hour" do you include the cost your employer paid to anyone who ever retired from the company? Obviously not.

So the reason we keep hearing that US automakers make ridiculous amounts of money per hour is that the figures cited include the cost of medical benefits, pension costs and the expenses the company pays for retirees as well. They probably throw in the cost of the kitchen sink in the employee break room too. The auto companies cite the large numbers including all the benefits for current and retired workers. Its in their interest to make the wage numbers look as large as possible to shift 'blame' over their problems to their labor costs. It is misleading to include the benefits in discussion of wages and not make it abundantly clear what the exact differences are. I'm not sure if its mostly the auto makers or the press that is at fault for this but they're probably both to blame.

But you still might think that even if you look at hourly wages alone that the US autoworkers are over paid compared to the workers in foreign auto company plants. Thats not the case. Workers in US auto factories are paid hourly wages that are close to or on par with the foreign auto plants in the US. This article UAW Losing Pay Edge from the Detroit Free Press they say that a Toyota plant paid workers bonuses that brought their pay up to equivalent of $30 an hour while the UAW workers got $27 an hour. So in that case Toyota workers in the US are making $3 an hour more (including bonus) for that plant compared to the union workers at US auto maker plants.


Here is an article that discusses the point: Debunking the myth of the $70-per-hour auto worker from the New Republic.

Tax Time: Going to use a CPA this year

This is the first year that I'm not doing my own taxes.

In previous years I would do my taxes the old fashioned way: with a #2 pencil and a calculator. Doing my taxes on my own had mixed results. Initially my return was very simple with just a 1040EZ and standard deductions. That part is simple enough I had no problems doing it myself without aid of a CPA or buying tax software. As things got more complicated in recent years doing the return got more tricky. I've made a couple mistakes in the past 2-3 years that drew some IRS attention. Thankfully there wasn't anything serious enough to warrant an audit. One year I just added wrong and they notified me of the mistake and automatically adjusted my return. Another year I forgot to account for a stock sale so I had to amend the return, but I actually lost money on that sale so it didn't cause my bill to increase. Because of this I'd been thinking of getting tax software at least to help me do the taxes and help catch any errors.

This past year I got married and so that complicated our tax situation even further. We decided to get the taxes done by a professional. We'll have to pay them to do so of course. I don't have the bill yet but I expect it to be $300-400 range. Our CPA isn't especially cheap and I'm sure I could shop around and get it done a bit cheaper. We do have a lot of forms to handle though. Theres the Schedule A for itemization, Schedule D for stock sales, Schedule E for rental income, a form for charitable donations and potentially other forms as well. The reason we're using the CPA we are is that she came very highly recommended from a close friend of mine. He also said specifically that she's good about finding deductions that you wouldn't know about otherwise.

When I found out that the bill would be $300-$400 range I wondered if I shouldn't just tackle doing it on my own. Doing the taxes on my own isn't a big problem and is well worth my time if I can save $300 or more by doing it. But the big question is whether or not the professional CPA will save us more in the way of deductions and justify that $300+ cost.

To tell if spending the money for a CPA is worth it or not I'm going to run the figures myself by doing my own figuring and then estimate the return I would have gotten if I did it all on my own. If our CPA can save us more than what I'd get on my own that then I think the cost of paying them is well justified.

There are other good reasons to have a CPA do the return. If we screw up then it gives us a little measure of protection from the IRS. Also it will of course save me the time and hassle of having to do it on my own.

Don't forget that the tax preparation bill is also deductible. So we can deduct the $300-$400 fee and only end up paying about 66% of that after the tax break. Our actual cost will be more like $200-$300.

See also:

Free Money Finances explanation for why he does it : Why I Use a CPA to Do My Taxes

Gold versus Oil prices from 1970 to today

Below is a quick chart comparing the prices of gold and oil from 1970 to 2009.

The price of gold in US$ is on the left vertical axis and the price of crude oil in US$ is on the right vertical axis.



Its interesting how similar the trends are. Why the two might follow similar pricing trends is a good question that I might examine in a following post.

Historical crude oil prices were found at the Energy Information Administration website for Annual Energy Review. I used their data for Crude Oil Domestic First Purchase Prices, 1949-2007. Then for 2008 & 2009 numbers I used their short term energy outlook page.
Gold prices are from Kitco

Net worth update : Feb. 2009 = +$3008

I track my net worth monthly on NetworthIQ. From the last update in Dec. 2008 until end of Feb. 2009 my net worth increased $3,008. Most of that is due to increased cash balances. We sold a car, I got some bonuses and stock purchase via work. Our retirement accounts have been going down though.

Best of Blog posts for the week March 6th

The Digerati Life takes a deep look at Lending Club with Lending Club Investment Performance, Loan Returns: Should You Invest Via Direct Lending?

Lifestyle Diseases and Personal Finance from Personal Finance Advice is an interesting discussion of our lifestyle choices can impact our health and in turn cost us money.

Jim at Bargaineering discusses Deducting Miles for Charitable Volunteering

Darwin's Finance talks about how US Workers Have the Worst Severance Packages

Use Letstalk.com and Ebates.com to save on cell phones.

I've mentioned using Ebates in the past to get a discount on your online shopping. Today I got an email from Ebates advertising the various discounts you can get. Since I joined them I got on their email distribution so they send regular newsletters promoting deals. ONe of the deals mentioned is a $45 rebate via Ebates if you use Letstalk.com to buy a cell phone & cell phone plan.

It turns out that Letstalk.com has pretty good prices on cell phones and they seem to be cheaper than buying direct from the cell phone companies. If you the $45 Ebates rebate to the low prices at Letstalk then you can save quite a bit. Check out the examples below.

Note that some of these cell phones and plans are fairly pricey. I picked the phones and plans semi-randomly just to get some examples and I don't necessarily endorse buying these phones or plans. I would recommend you shop around for a good plan that meets your needs but doesn't go overboard with features and minutes that you won't need.


Example #1:

Two Sidekick phones and 700 minute family plan with web access.

T-mobile : $300 for the phones, $120 a month fee, $70 activation

Letstalk.com : $0 for the phones, $45 rebate from Ebates, $120 a month fee, $70 activation

Save $345 by using Letstalk & Ebates

Example #2:

LG Vu CU920 on AT&T with 450 minute individual plan

AT&T direct : $100 for phone, $50 mail in rebate, $25 online rebate, $48 a month & $36 activation
Letstalk.com : $0 for phone, $45 rebate from Ebates, $48 a month, $36 activation

Save $70 by using Letstalk & Ebates

Example #3:

Blackberry Curve 8330 on Verizon with nationwide select 450 individual plan with blackberry web plan

Verizon : $100 for phone, $90 monthly, $35 activation
Letstalk.com : $0 for phone, $45 Ebates rebate, $90 monthly, $35 activation

Save $145 by using Letstalk and Ebates


Thats 3 examples I checked across 3 different phone and plan choices and they all end up saving you money on Letstalk & Ebates.

I haven't used Letstalk myself. They have a 'good' rating on Bizrate with over 75000 reviews so that should speak for something. I don't know much more about the quality of their service.

If you're shopping for a new cell phone plan then Letstalk and Ebates can potentially save you a lot compared to buying direct.

Why is AIG so important?

Watching the news I've wondered why AIG is getting so much attention and government funding. I don't know much about AIG personally. I knew they are an insurance company but not much past that. I've had a hard time understanding why people felt that saving AIG was so important and why it was worth so much government aid. This has puzzled me personally for a while. Why *IS* AIG so important?!?

I decided to try and figure this out and did a bit of research. I found a number of press articles on the topic of why AIG matters or why an AIG failure would really hurt the economy.

They are huge.
Why AIG matters at MSN said that "the company [AIG] is the world's biggest insurer and does business in nearly every country". The Star Ledger of New Jersey elaborated: "AIG has assets worth more than $1 trillion and 74 million customers around the world. Its stock is held by many mutual funds. Indeed, AIG is responsible for dragging the Dow Jones industrial average down more than 400 points so far this year, according to CNNMoney.com." A Seattle Times article said that they have 30 million customers in the US alone.

But being big alone isn't the real problem. What is the key reason that AIG is important? We fear that their failure could cripple financial markets worldwide.

They sold insurance against the subprime crisis
AIG sells a lot of different kinds of insurance. Its not just life, home and auto. AIG insures other companies investments. In a Reuters article "How AIG Fell Apart" they explain AIG sold something called a Credit Default Swap (CDS) which is basically insurance on financial investments like bonds. One of the big things they sold CDS on was mortgage backed securities. The MSN article said "AIG has been selling insurance against the very calamity that is now engulfing the markets". When the subprime mortgage crisis started those bonds started to fail and AIG had to pay out on their CDS's. Now we're faced with the situation where all sorts of banks and financial companies are dependent on the insurance of CDS sold by AIG to guard them against further failures in the world economy. If AIG were to go bankrupt then everyone would lose their insurance. That would cause all the banks to get more expensive insurance and or withdraw their activities even further. The upshot is that if all the sudden AIG went under then it would remove a layer of protection in the already shaky economy and it would send a ripple through the financial sector that would shut down the economy even more.

At a personal level that all might be hard to relate to. But think of it this way: What if you had a pre-existing medical condition and all the sudden you lost your health insurance cause the insurance company went bankrupt? Thats a similar situation for if AIG went under. The world economy has a crisis right now that is like a pre-existing condition. If banks had to get other insurance it would be hard to come by and very expensive. Then if they were in that situation they'd either be in serious jeopardy of losing everything if they didn't have insurance or spending much more money to pay for expensive insurance.

Is AIG to blame?

Honestly I don't know how irresponsible AIG was in their financial dealings. But for the most part if they were insuring bonds then thats a pretty safe thing to insure. High rating bonds very rarely fail. In general I would think that writing insurance to cover bond failures is a fairly safe financial move. Many of the mortgage backed securities had much higher credit ratings than were really warranted. AIG may have been a bit irresponsible in getting over exposed to CDS failures. But I don't think I'd consider selling the CDS's to be irresponsible in general. Theres plenty of blame go around and it doesn't all fall on AIG for their problems.

When it makes sense to build your own computer.

I work in the high tech industry for my job so I know a bit about computers. I've built my own home computers in the past. I found that I could make the system I want with all the specific options that I wanted for cheaper than buying a computer from a major manufacturer. As time has gone by though, the new fully built systems get cheaper and cheaper. Does it still make sense to build your own computer or should you just buy one prebuilt?


Below I'll do comparisons of the costs to build your own system versus buying a system from Dell. I'm going to compare only buying parts at Newegg and buying from Dell. You could shop around for other bargains with other vendors but I want to keep things simple. Pus I know that both Newegg and Dell offer a good selection at reasonable prices. When shopping for parts at Newegg I will look for good brands with good reviews. You might save a few bucks going with other brands or items with lower reviews but cheaping out on computer parts is not a good idea.
Note that my choice of parts is being guided by what Dell offers for options. I'm building a system to compare apples to apples to the one you can buy at Dell.


Comparing a low end system

First lets look at a low end system. This is a cheap basic desktop system with all the basics but nothing special.

Buy a system at Dell

Inspiron 530S = $279
S/h = $35

Total = $314


Buy the parts at Newegg

At Newegg the parts to build a system comparable to the low end Dell would cost:

Chassis $32: Linkworld 3131G-C8815U
Motherboard $48: ASUS P5GC-MX
Processor $40 :Intel Celeron 430
OS $90 : Microsoft Windows Vista Home Basic
Memory $23 : Crucial 2GB (2 x 1GB) DDR2 800
Harddrive $55 : Seagate Barracuda ST3320613AS 320GB
DVD RW $21 : LITE-ON 22X DVD±R DVD

$309 + $24.5 s/h = $333.50

As you can see for this low end configuration comparison it actually costs MORE to buy the parts and build the computer on your own than it would to just buy a full system from Dell.



Midrange system

Now lets look at a midrange system with a couple extra features. First we'll beef up the processor and memory. Rather than the basic CPU we'll go for a good midrange that has a nice pricepoint. We'll also double the memory. Second we'll go for a basic addin video card. The addin card is going to give you better performance then the onboard video but its not a high end card.

Building your own at Newegg

CPU $120 : Intel Core 2 Duo E7400
Video $37 :SAPPHIRE 100234HDMI Radeon HD 3450
Chassis $32: Linkworld 3131G-C8815U
Motherboard $48: ASUS P5GC-MX
OS $90 : Microsoft Windows Vista Home Basic
Memory $46 : 2x Crucial 2GB (2 x 1GB) DDR2 800
Harddrive $55 : Seagate Barracuda ST3320613AS 320GB
DVD RW $21 : LITE-ON 22X DVD±R DVD

Total $449 + s/h $27 = $476

Buy a system at Dell

I took the Inspiron 530 and upgraded the processor, memory and video card.

Total $554 + s/h $35 = $589

For the mid range system you're saving $113 by buying the parts and building it on your own.


High end system

With the high end system we'll go with even better video and processor plus we'll update to the high end version of Windows.

Video $100 : HIS Hightech H260XTP512DDN-R Radeon HD 2600XT
OS $180 : Microsoft Windows Vista Ultimate
CPU $230 :Intel Core2 Quad Q9400

Total = $712 + 28 s/h = $740

Dell system
Again I simply took the Inspiron 530 and upgraded the parts. I added the Q9400 cpu, HD 2600XT video and went with Vista Ultimate edition.

Total $964 + s/h $35 = $999


For the high end system your savings would be around $260 to build it yourself.


In summary here is a chart comparing the prices if you build your own versus buying a system from Dell:

	Dell	DIY	Savings
Low	$314	$333	($19)
Mid	$589	$476	$113
High	$999	$740	$259

If you're just making low end system then its not going to save you money to build your own system. If you're making a mid or high end system then you can still save money by building your own.


Images from Dell and Newegg.

Should you buy dental insurance?

I have dental insurance at work but not everyone does. If I'm able to retire early then I should figure the cost of dental work. Dental work seems like a decent candiate to get insurance fore, but I'm not sure if dental insurance is worth it or not. Dental work seems to run $100-$200 for typical checkup and cleaning and then maybe a few hundred for xrays and filings. Major work like root canal or oral surgery is several hundred to a couple thousand. In my experience usually all I spend on dental work is around $200 a year for my routine cleanings. Of course you're running the risk that you might need a root canal or a couple filings done and those could run you a couple thousand.

eHealthInsurance has quotes on dental insurance plans. You can get a quote based on your family. For example a married couple would could get insurance for $45-90 a month. I checked the price for a couple in their 30's and a couple in their early 60's and the price didn't change. That doesn't seem too expensive. But the problem with the insurance is how little they actually cover. The plans have $50 deductibles, coinsurance of 0-70% and annual payments of $750-$1000 per person. So you're looking at paying $500 to $1000 for a maximum payout of $1500 to $2000. Given how infrequently most adults actually need major dental work, this doesn't seem like a good buy at all.


How much are you likely to spend?

First for reference we could figure the average spending per capita. According to the American Dental Association the total spending on dental care in 2005 was $86.6 billion. With about 295 million people in 2005 that means we spent about $300 annually per capita on dental expenses.

But each person is different. I think we can tell to some degree how likely we are to need dental work. Some of us never need any filings and others have frequent dental problems. Based on the health of your own teeth you can adjust your expected annual costs up or down to some degree.

Given that insurance runs $500-$1000 range annually for a couple and per capita spending is only $300 on average the payout on the insurance is not very good. It makes more sense to self insure for dental expenses.

Dental plans as an alternative

With a dental plan you pay a fixed annual rate to join the plan. The plan isn't insurance but more like a discount card. When you are a member you get your dental work at a discount rate. For example if an adult teeth cleaning normally costs $83 then your plan rate might be just $37 and if a filing is $135 usually then the plan discount rate might be just $66.
I checked Dentalplans.com and got some quotes there. The cost of the plans runs $80 to $145 for individuals or $130 to $200 for families. With the dental plans you can nearly break even on out of pocket costs if all you do is have 6 month checkups and cleanings. And if you do have high cost procedures then you can save a lot more than your annual payment.

Keep in mind that not all dentists take every dental plan. So it would be a good idea to research plans with specific dentists in mind. You can look up your current dentist at Dentalplans.com and see what plans they take and go from there. My current dentist doesn't seem to take any of their plans. But I found a highly rated dentist at DR Oogle and he takes one of the plans.

Use an HSA to pay for dental costs.

If you have or can get a Health Savings Account for your normal medical insurance then you can put extra money into the account to help pay for your dental costs. Since the HSA funds are pre-tax you'll stretch your dollars further. My marginal tax rate is about 34% right now so paying with HSA funds is like getting 34% off all my dental costs.


In summary:

Given the fairly high cost of dental insurance and how little they actually pay out, I don't think individual dental coverage is a good buy. Its probably best for most people to self insure themselves for dental costs.

A dental plan might help reduce your dental costs. Check out he plan and its discounts in advance to see if it will work out for you.

Using an HSA to pay for dental expenses will definitely save you money.

Is buying an Extended Auto Warranty a good idea?

Around 12 years ago I bought a used car at a dealer. They offered me an extended warranty for a few hundred dollars. At the time it seemed like a decent price for the added protection so I went ahead and bought it. In hindsight I realize it wasn't such a smart idea.

One red flag should have been how they pushed the warranty on me. It was offered by the finance guy at the end of the discussion along with the other addons such as rust proofing. This is normally where I think car dealers try to pad their profits by tacking on anything they can can sell you with a high margin. Worst of all he claimed that I had to buy it then or I wouldn't have the offer later. That claim should have been a red flag as anything worth it for them to sell me today they should be just as happy to sell tomorrow or next week. This was a definite high pressure sales tactic and generally in those situations its best to say no. Don't let a salesman try to pressure you into any purchase.

After I bought the warranty I did some online research and found out that I could have instead gotten a warranty on my own with better coverage for a lower price. So no surprise, I over paid for the extended warranty by getting it from the dealer compared to going straight to an independent car warranty company. Another reason my warranty wasn't a good buy was that it didn't actually seem to cover all that much. After I got the warranty and had the car a while I had a couple things break down. The first thing was very minor and I had to pay almost all the costs due to a $100 deductible. The second thing wasn't covered at all. I got virtually no benefit from the warranty. Lastly the warranty required that I have my car serviced at the dealer that I bought the car from. This forced me to go to one dealer and pay their prices anytime something went wrong. If I wanted warranty coverage for anything then I had to go to them and pay them the $100 deductible for anything they did.

Normally I say no to extended warranties for products like electronics but with a car I figured the potential cost of repairs would be very high so a warranty might be a good idea. Honestly that still seems like a relatively good idea to me. Car repairs can be very pricey and having a warranty on such a big ticket item makes some sense to me. My sister paid about $8,000 a couple years ago to get a new engine installed in her 10 year old SUV. If she had bought a good extended warranty then she could have avoided much of that cost.

I got an instant quote from Auto Service Warranty and this is what the rates are:

Warranty	Add on Miles	Coverage
24 months	24000	$1,099
36 months	36000	$1,297
48 months	48000	$1,485
60 months	60000	$1,685

The mileage rates are above the amount already on the odometer.

Even though they have an instant quote function that asks you your car make, year and mileage I think they quote the same warranty coverage and rates for all results. It seems these are standard rates for any make of car going back to year 200 models. So the cost is in the range of $337 per year for a 5 year warranty to $550 annually for 2 years. Here's another site with some more prices listed.

The coverage is listed on their site and it seems pretty extensive. If you're seriously interested in buying an extended auto warranty then I'd strongly recommend you get a copy of the actual contract details to find out everything that is and is not covered. The details of the fine print will be pretty important as I found out with the warranty that I bought.

Auto Service Warranty is one company and there are others like WarrantyDirect.com and Nation Warranty Corporation (NWC). However they want name and phone number info to give quotes online which I don't like to do if I'm just researching.

Is an Extended Warranty a good idea?

Back to the original question. Honestly I think that extended warranties can be an OK buy but it really depends on the situation and your own risk tolerance. A bad warranty is not a good buy so its key to make sure you get a good warranty. If you find a good warranty and you want the added protection then it could be a good buy for you. You could also do just as well self paying on repairs for your car if you're comfortable with the risk of high cost repairs on an older vehicle. Bottom line is that whether or not a warranty is a good idea depends on your own risk tolerance and if the warranty itself is a good one.


If you do think a warranty would suit you well then here's some key things to look for when comparing extended auto warranties:
1. Pricing
2. Details of coverage. - Look for coverage of 'wear and tear'. It would be a good idea to have your mechanic look at a contract first to see if its any good.
3. Your choice of mechanic. - Make sure the warranty lets you pick which mechanic you go to.
4. Reputation and reviews for the warranty company. - Check out the warranty provider in advance. Try to find reviews of them online. Check their BBB rating and insurance rating.


Additional resources:
How To Buy An Auto Extended Warranty & Avoid Scams
Extended Auto Warranty - An Industry Insider's Guide
Extended Warranty Myths at Yahoo
Extended warranty for your car
Extended Auto Warranty Reviews
Shopping for an Extended Warranty at MSN

Pay out rates for Immediate Annuities

Thanks to a link over at Lazy Man and Money I found this Immediate Annuities site that gives easy and quick quotes on annuity payouts. The site gives you quick figures on payout rates for immediate annuities. Previously I've looked at annuity figures on the Vanguard site but its a little hard to find their annuity quotes there.

I ran the calculations for a few ages on an premium of $100,000 and came out with sample figures for a few ages. For a $100,000 purchase you would get monthly payout rates in the $500-$700 range. It varies based on age and sex. If you get a joint payout for a married couple then it will pay out less but it will pay benefits for the life of both spouses. For the joint payout I assumed that the spouses are the same age. Spouses of different ages will have different payouts but you can run the numbers yourself at Immediate Annuities site. These are just sample quotes and theres no guarantee you'll get these payouts. You may find better or worse payout through other sources. Your exact health condition and state you live in may impact the quote you get.

Monthly payout figures for $100,000 annuity purchase:

Age	Male	Female	Joint
40	$534	$523	$506
45	$552	$537	$516
50	$576	$558	$529
55	$610	$585	$544
60	$656	$623	$573
65	$723	$676	$593

Or as a % annual payout from the initial premium cost:

Age	Male	Female	Joint
40	6.4%	6.3%	6.1%
45	6.6%	6.4%	6.2%
50	6.9%	6.7%	6.3%
55	7.3%	7.0%	6.5%
60	7.9%	7.5%	6.9%
65	8.7%	8.1%	7.1%

So in other words if you are a 40 year old male and buy a $100,000 immediate annuity then you could get $534 a month. That is $6,408 annually which equates to 6.4% payout from your initial $100,000.

Keep in mind that these annuities have no inflation adjustment. Personally I'd recommend looking into annuity with a cost of living adjustment built in. Also the joint payouts are for 100% payout to surviving spouse. I don't think 1 person needs 100% as much as 2 people so you could go with a 66% or 75% payout rate instead and get a better benefit payout.