Selection Bias, The Wanting Mind, Bank CDs, and Socially Responsible Investing
Here are some of the blog posts I enjoyed this week:
Profiles in Selection Bias at The Incidental Economist – Be careful when you read media reports about statistics drawn from different population.
TIE says the media love selection bias and don't know it. I say they don't care whether there is selection bias because they love the attention-grabbing headlines. Think about the audience. Who has time to really think about it?
Understanding and Conquering "the Wanting Mind" at AllFinancialMatters – How do you fight with getting drawn into the latest and greatest? JLP says "STOP LOOKING for a replacement of what you currently have!"
Which Broker? You Don't Need One
When people start investing outside their 401k or 403b plan for the first time, their very first question is often "Which broker?" The answer should be "You don't need one."
Vanguard is a great choice for beginning investors (and seasoned investors!), but Vanguard is not a broker. It's a mutual fund company. Vanguard has a brokerage subsidiary, but it is primarily a mutual fund company.
What's the difference between a mutual fund company and a brokerage firm then?
What Is AAA, Really?
My AAA membership is up for renewal. I'm talking about the organization that provides emergency roadside service: towing, jumpstarting, and lockout. It used to be American Automobile Association. Now it's just AAA.
I have been a AAA member for a few years but I still don't understand what AAA really is. I mean, is it a for-profit company? If so, who owns it? AAA books travel. Who earns the commission? AAA sells auto insurance. Who's providing the insurance? Does AAA have its own insurance subsidiary or is it just an agent for other insurance companies? If I don't use AAA travel agents or buy insurance from AAA, am I benefiting from the profits in those areas?
Wikipedia says AAA is a non-profit owned by regional motor clubs. Individuals like myself are members of a regional club, for example AAA Northern New England. It's still not clear to me whether the regional clubs are for-profit or non-profit. I don't have auto or homeowners insurance through AAA. Therefore I don't know who's behind the insurance. If anyone knows for sure, please help.
Summer Tax Tips From the IRS
The kinder, gentler IRS published 7 sets of tax tips for the summertime this year. Check them out:
Does a Mortgage Escrow Account Pay Interest?
If you a regular reader of this blog, you probably read that I signed up for using an escrow account for my mortgage when I did my mortgage refinance a few months ago. This is the first time I've used an escrow account. I did it because I didn't want to pay the escrow waiver fee or give up the credit the lender offered to me for my trouble.
When you use an escrow account, you pay a few hundred dollars extra every month on top of your regular monthly mortgage payment. The mortgage servicer holds those money until your property tax and homeowners insurance bills come due. Then they use that money to pay the tax and insurance bills.
I was hoping the mortgage servicer would cancel the escrow account after the loan is sold and the servicing is transferred. But they said no. They won't close it unless I pay them a fee. I will just stick with it.
Unleash the Power of Sharing Notes
Jonathan at My Money Blog wrote a very good post about shopping for hotel rooms a while ago:
Where Can I Buy California IOUs?
California IOUs (aka "registered warrants") are all over the news. The SEC ruled that they are considered securities. They basically told people not to sell except to established muni bond dealers.
I think the 3.75% tax free yield together with the short maturity (< 3 months) make these IOUs attractive even at face value. Yet no brokerage firms I have account with buy them from the IOU holders, let alone sell them to customers. I'm guessing that's because these IOUs are in paper form, which makes them difficult to buy, sell, and transfer. The brokerage firms' computer systems are just not set up for these.
A legit broker-dealer called SecondMarket* has set up a process for buying and selling these IOUs. It looks quite convoluted to me.
Buying a Car Extended Warranty
A family member asked me to help him buy an extended warranty for his car. I got the enviable job because the extended warranty costs a lot of money (over $1,000) and I have the reputation in the family for getting good value for money.
Is an extended warranty on a car "worth it"? The standard advice you hear about extended warranties is that they are not worth it. I disagree. I must say it depends. It depends on what price you pay and what you get for that price. The coverage is worth something. If you pay a low enough price for the right coverage, you can make the extended warranty "worth it."
Let me begin with what NOT to do when you buy an extended warranty.
Why Are Some Companies Hated By Consumers?
Why are some companies hated by consumers while other companies are loved? That sounds like something Harvard Business Review would write about. And indeed, it has. In Companies and the Customers Who Hate Them, Harvard professors Gail McGovern and Youngme Moon said a company is hated when it sets adversarial rules to extract value from its customers, rather than to provide value to them.
Firms taking advantage of customers through such tactics, whether deliberate or unintentional, trigger a backlash: consumers retaliate — with lawsuits, mass defections, and company-specific "hate sites."
I would add that in addition to providing a bad product or service, a company is hated by the consumers when consumers don't have a better choice. If you look at the Worst Companies in America 2009 list at Consumerist, you will see many companies on the list are near monopolies in their market segment. By popular votes, the four Worst Companies in America 2009 were: » Read more …
Save Money On Auto and Homeowners Insurance with Premium Comparison Surveys
[Updated on July 7, 2009: Added links for Maryland and New Jersey.]
I spent more than 15 minutes and I saved more than 15% on my auto and homeowners insurance. For the same coverage, I saved 25% on my auto insurance and I saved 38% on my homeowners insurance.
A typical "how to save money on insurance" article will tell you to drop collision and comprehensive coverage on older cars, get your good driver, good student, and alumni association discounts, increase your deductibles, insure your car and home with the same company for the multi-policy discount, etc. etc.
I'm not going to repeat those. I assume you already know what coverage you want and what deductibles you are comfortable with, and you already pursued all the discounts. If not, you can search for those articles on the Internet. There are a ton of them.
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