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Life Insurance

Only buy guaranteed-renewable term life insurance from A-rated insurer. “Whole life” insurance, which accrues value over time, combines savings and investment with insurance. I have heard of no good reason to bundle those activities. But there are good reasons to avoid whole-life insurance, including:

1. The insurer can embed higher fees.
2. You expose yourself to credit risk of the insurer.  If the insurer fails then you could potentially lose the value of savings in your whole-life policy.  In contrast, if a term-life insurer fails you have only lost your most recent premium payment.  (Either way you are at risk of not being able to get a new policy in time.)

The purpose of life insurance is to protect those who depend on you being alive against catastrophic consequences of you not being alive.  Therefore, it never makes sense to insure child who does not produce income on which you depend.  It is not necessary to insure a homemaker if you can fall back on extended family in the event of their death for the essential services they provide.

As with all insurance, you pay a premium for protection (insurers generally make profits after paying claims and business overhead), so it is irrational to load up on more insurance than you need — unless you know that you are at a much higher risk of dying than actuaries think you are.

How much insurance is reasonable?  If a young family depends on your income, and you have no savings, then you should probably get enough insurance that your wife and kids could maintain their standard of living for 20 years (or until the children are independent) from the proceeds of a policy.  A healthy young man can get a 10-year guaranteed-renewable $2MM insurance policy for around $600/year.  After 10 years, hopefully he will have saved some money and his dependents will be closer to independence so he could drop his coverage to $1MM.

You should not buy insurance to provide independent heirs with an inheritance.  If you play your cards correctly you should Die Broke.  Older people should eventually be able to self-insure out of their savings.  Once they have no dependents they should eventually plan to purchase an immediate annuity to provide insurance against outliving their own savings.

Last time I bought a term-life policy I found the best contract through Zander Insurance Group, an independent insurance brokerage company that made the process as easy as it has ever been.

Recoil Reduction Products

I own two over-under field shotguns.  These are light guns optimized for carrying on long walks hunting birds.  But a lighter gun means heavier recoil.  I like to take my field guns trap shooting, but it can be painful to shoot more than a few rounds with 12-gauge or even 20-gauge loads.

Competitive shooters with customized guns and release triggers laugh at the idea of using field guns for sporting clays.  “If you want less recoil you have to add more weight to the gun,” they insist.  Adding weight is certainly one way to dampen recoil.  But I’m a practical guy and I don’t want to turn my light field guns into heavy competition guns.

Fortunately there are other ways to control recoil:

1. Fit.  This is the primary factor affecting the shooting experience of a bird gun.  If the gun doesn’t fit the shooter then the shooter won’t be able to maintain a correct shooting posture: Cheek “welded” to the stock, butt snugly in the shoulder pocket, and dominant eye aligned with the front sight bead.  If you can’t lock the gun against your cheek and shoulder then the recoil of every shot will slap you (often leaving visible bruises).  If your eye isn’t aligned with the sight then you will probably miss the target.  (The shooter’s eye serves as the rear sight on a bird gun.  It doesn’t take much sight movement to change the point of impact at 20-40 yards!)
2. Action.  A semiautomatic action will absorb a significant amount of recoil.  Of course that doesn’t help if you’re talking about making a bolt or break action easier to shoot.
3. Dampers.  You can dissipate recoil energy using damping mechanisms.  Almost every gun comes with a rudimentary damper in the form of a rubber recoil butt pad.  Here I review some more advanced dampers.

Edwards Recoil Reducer

Edwards Recoil Reducers are light cylinders containing a spring-buffered counterweight that absorbs and even redirects (depending on installation angle) recoil.  I got one delivered from Brownells for $60.  It looks and feels like a rugged device.  Edwards has been making these for over forty years and backs each reducer with a lifetime warranty.

Installation in a wooden stock can be a bit of a project.  Take the recoil pad off of any shotgun and you’ll discover a lot of empty space in the stock.  Before you can properly install the reducer you probably need to fill that space with some combination of dowels or other wood trimmed for a tight fit.  Then with a 7/8″ forstner bit you can carefully drill out a hole as high and parallel to the gun’s barrel as possible.  Push the recoil reducer into the hole, make sure it’s snug, and screw the recoil pad back on to hold it in place.

After installing the Edwards Recoil Reducer in one of my guns I took it right back to the trap field — still sore from shooting four rounds two days earlier.  The recoil reduction was immediately obvious.  I’m still working on a recoil gauge to quantify peak forces, but to me it felt like close to half of the recoil was gone.  Even after four more rounds with the gun I would have been comfortable continuing to shoot.

Graco GraCoil

Graco’s GraCoil is a butt plate that contains an adjustable piston that compresses up to 5/16″ to absorb recoil.  Compression damping is also what a good recoil pad is supposed to do, but pads aren’t adjustable and they can’t get too mushy before they impact handling.  The GraCoil spring can be tightened just enough that it doesn’t move under the pressure of your shooting stance, but then immediately starts to compress to absorb the recoil of a shot.

GraCoil plates also include a mechanism to enable significant adjustment to the position of the butt pad.  This allows for significant improvements in the fit of a shotgun (which, as noted above, is an essential feature!).  I opted to buy the GraCoil Model GC15-LP which also includes a length-of-pull adjustment.

The GraCoil needs to be ground to fit a particular stock, something I didn’t feel like attempting.  Total cost of the GC15LP with factory installation is $375.  MPC Sports will sell and install the same unit for $325.  I went with the latter vendor.  I carefully reviewed the proposed work with their gunsmith over Email and then mailed my stock to their shop in Atlanta.  The completed piece was back in my hands just a week after they received it.

After tweaking the tension on the piston and getting the butt pad in just the right place shooting with the GraCoil is so easy and natural I really could break clays all day long.

Mysterious Vista Bootloader

After spending a weekend trying to upgrade a drive I learned some important things about the Windows Vista Bootloader and the solution to a poorly documented problem:

If you use Acronis True Image 10 or Norton Ghost 9 to “clone” or copy a drive that boots using the Windows Vista Bootloader you will get the following message when trying to boot to any operating systems on that drive:

File: \ntldr
Status: 0xc000000e
Info: Selected entry could not be loaded because the application is missing/corrupt.

The reason appears to be that the arcane Vista Bootloader references to the O/S targest on that drive are corrupted (presumably because the Vista Bootloader isn’t backwards compatible with the MBR standards expected by older disk cloning utilities).  The solution is to reset the references using Vista’s BCDEDIT or, better yet, the helpful and free utility EasyBCD.

Tax-Exempt Investments: The Best Opportunity Now

Treasury Inflation Protected Securities (TIPS) are a unique asset class ideally suited to investment in tax-exempt accounts (e.g., retirement accounts like IRAs and 401ks).  TIPS pay interest like regular treasury bonds, but they also appreciate in line with inflation.  The mechanisms by which they pay out are somewhat convoluted and undesirable from a tax perspective, which may contribute to the discount they currently carry in the market.  If you can buy TIPS in a tax-exempt account you don’t have to worry about these nuances.

The clearest way of valuing TIPS is in terms of the “break-even rate of inflation,” which is the inflation rate at which an investor would earn the same from TIPS as from regular treasury bonds of the same maturity.  If realized inflation exceeds the break-even rate then investors in TIPS earn more.  If inflation is lower than the break-even rate then investors in regular treasuries earn more.

Considering the break-even rate, TIPS are extremely cheap.  For example, the break-even rate on 5-year TIPS is 1.12% — well below current inflation, historical inflation, and even the Fed’s target inflation rate.  The dollar faces a number of inflation risk factors, and the current market bailout by the U.S. Treasury only adds to these risks.

Since TIPS are an undervalued, tax-inefficient asset that offer inflation protection they make an ideal investment for tax-exempt retirement portfolios.  Investors who want heightened exposure to these characteristics can buy leveraged CEFs that invest in TIPS: E.g., WIW and WIA.

Where to Invest Now

There is no better time to invest than when lots of other investors need their money back.  During market crises like the present the premium on liquidity skyrockets.  I.e., if you have cash on hand that you can commit to investments for an extended period then the people who don’t will let you scoop up assets at firesale prices.  Hence, the rules for investing in a market crisis:

1. Don’t abandon investments unless you need cash.  If you sell during a liquidity crunch you become one of the people paying the liquidity premium.

2. If you buy during a liquidity crunch you collect the liquidity premium.  Therefore you should revisit your asset allocation and consider reallocating your investments to increase your exposure to distressed assets.  (Don’t try to pick stocks or sectors — the information premium during a market crisis can also skyrocket, which means if you don’t have extraordinary information you are at a heightened disadvantage.)  For example, last week a lot of institutions needed to move into short-term treasuries.  They were dumping corporate bonds, stocks, and just about anything else to do it.  Demand for treasuries got so high that buyers were literally paying out for the right to own them (i.e., interest rates went negative).  If you held treasuries and didn’t need the exceptional margin of security they provide it was a good time to cash them in and buy the things everyone else was selling.

In general your portfolio should reflect your investment time horizon and risk aversion — i.e., how long you can keep your money invested, and how much interim “pain” you can tolerate.  The more pain, the more (potential) gain.  During a liquidity crisis you may perceive that risks have gone up and thus be inclined to sell risky assets and move to more liquid assets.  That is exactly the wrong course of action, because it turns you from a liquidity provider into a liquidity demander.  If you succumb to the urge to pull money from the markets you will find yourself in the notoriously underperforming pool of retail market timers who always buy near the top, when everything seems great, and sell near the bottom, at the point of “maximum pain.”

When you see falling asset prices during a liquidity crisis do not think, “Shoot, those assets are riskier than anyone thought, I had better get out too.”  Instead think, “Wow, the market is willing to pay me even more to move into those assets.  Last time I considered those I didn’t think the extra return was worth the risk.  But since that return potential is even higher maybe now it is worth owning them.”

How can you collect the handsome liquidity premium that exists in the current market?  If you own CDs, consider paying the early-withdrawal penalty and putting the money into corporate or muni bonds, whose spreads over treasuries have spiked to record levels.  If you already own bonds consider moving to higher-risk asset classes, or else consider leveraging up using bond CEFs.

FrontSight Nevada Firearms Training

Outside of the military, I have taken commercial firearms training courses at both the SIGARMS Academy in New Hampshire (now called the SIG SAUER Academy) and at FrontSight in Nevada.

My experience at SIG consisted of a 3-day Concealed Carry Pistol course.  They have a great indoor range where they shoot only lead-free frangible ammo, which means you can get up close with the reactive metal targets.

At FrontSight you generally have to contend with outdoor courses where you are exposed to all of the rigors of weather in the Nevada desert.  In return you get access to some very long ranges and simulators.  My first experience at FrontSight began with a promotional half-day submachine gun course.  Subsequently I have done one-day assault rifle and shotgun courses, as well as a two-day practical rifle course.  In every case I drove up each day from Las Vegas.  My best experience was with the one-day courses, which you can custom schedule almost anytime one of the longer courses isn’t in session: My wife and I had an instructor and a range to ourselves, and all ammunition was provided.  List prices for Front Sight can seem very high, but the institute’s director, Ignatius Piazza, is constantly running promotions so I would be surprised if anyone pays full tuition.  You can usually find discounted course “certificates” that cover tuition on Ebay.

The single most important variable in your experience at either institute will be your instructor.  On the whole I have been quite satisfied, though not every instructor is equally engaging or capable of adapting the content and pace of instruction to the students.  Both institutions keep a decent instructor/student ratio, so incompetent students tend not to bog things down.  One other thing you have to deal with at Front Sight is Ignatius Piazza’s cult of personality: Classroom time will include details of his personal philosophies as well as extended pitches for you to buy Front Sight membership and more courses.

Taxable Investments: The Best Opportunities Now

A good long-term investment plan does not change very often, but short-term cash and extra funds that you can dedicate to speculative opportunities should be constantly reevaluated.  The current markets present an extraordinary opportunity every individual should review.

If you are in a high tax bracket, tax-exempt bonds have historically offered a slightly better after-tax return than comparable taxable investments.  Over the last year, due to the liquidity crisis in the financial sector, tax-exempt bonds, a.k.a. municipal bonds or “munis,” have become extremely undervalued.  They now offer nominal returns that are roughly the same as taxable equivalents, which means that if you are in a high tax bracket you will end up with a lot more money if you put it in munis.

Clouding the situation has been the fact that bond rating agencies have historically put municipal bonds on a separate but identically named risk scale.  The Wall Street Journal notes, “[I]nvestment-grade corporate bonds between 1970 and 2000 had a 10-year default rate of about 2.3%, far higher than the 0.03% default rate of investment-grade munis.”  I.e., the finance industry has historically pretended that munis are as risky as taxable bonds that in actuality have proven to be seven times more risky.

Munis are not without risk.  Municipal institutions can default on their bonds, and they will be more likely to do so during a recession.  Also, muni bonds are exposed to the same price risks as most other bonds: Their value will decline if interest rates or inflation rise above the levels currently anticipated by the market.  Nevertheless, the risk level of investment-grade bonds is considerably lower than that of stocks or real estate.

First Action Item: If you are in a high tax bracket, this is definitely the time to move any non-retirement assets that you would normally invest in bonds into muni bond funds.  Your after-tax risk-adjusted earnings will be far higher with the munis.  Examples of good funds are Vanguard’s VWLTX, or USAA’s USSTX.

This is also a good time to consider a speculative angle on munis: Not only are they underpriced relative to taxable bonds, but they are also close to “support” levels where even non-taxable entities would start to buy them.  As soon as their nominal yields exceed those of comparable taxable bonds they will be bought by large investors that don’t benefit from the tax exemption — pension funds, endowments, etc.  I.e., they are below their historical and intrinsic price (which is the price a high-tax-bracket investor would pay to own them), and they are so low that they cannot fall much further relative to taxable fixed income.

Buying large amounts of municipal bonds with taxable funds could produce not only an attractive current yield, but also significant capital gains if they revert to their historical price levels relative to taxable bonds.  The best way to speculate on this dislocation is with leverage, and it turns out to be easy to leverage exposure to municipal bonds using Closed-End Funds (CEFs).  A typical leveraged muni CEF will employ leverage of 30% — which means you get roughly 30% more dividends and 30% more exposure to price swings than you would have from a conventional muni fund.  There are literally hundreds of CEFs in the municipal bond sector.  I look for high-yielding CEFs that are trading at a discount to their historical discount.  (There are a number of reasons why CEFs trade at a permium or discount to their NAV.  Without getting into those nuances just follow the rule-of-thumb that the practical “discount” for a CEF is defined with respect to its historical discount.  I.e., you’re getting a bargain if you buy a CEF at a discount to its discount.  Visit ETFConnect to look at the historical discount for any CEF.)

Second Action Item: This is a great time to speculate on munis using leverage.  Just realize that like all speculative strategies this is subject to greater risks: I.e., you can lose more money if things go wrong.  If you have speculative capital to put to work, look for a high-yielding muni CEF that is trading at a discount to its historical discount (I consider the average 52-week discount for this purpose).  Current examples would be:

• BFK (6.5% current dividend yield, and trading at a 6% discount to average discount)
• MVF (6.2% current dividend yield, and trading at a 3% discount to average discount)
• NZF (6% current dividend yield, and trading at a 2% discount to average discount)

CMC AR-15 Super Match Trigger Group

A typical AR-15 does not have a good trigger: My Bushmaster’s factory trigger is heavy and not particularly crisp.  I finally broke down and bought a single-stage Chip McCormick trigger group for $176.  The advantage of this over other match triggers designed for AR-15’s is that it’s a single rugged unit, easy to install, with a 3.5-pound pull that breaks like glass.  Drawback compared to its competitors is that it is not in any way adjustable.

Reasonable and Customary Charges

The American healthcare industry is carrying on a ridiculous scam: They do everything possible to obscure their prices, and then try to bill astronomical fees for services.  Anyone who has medical insurance should be amused when they see every single bill reduced by their insurer by factors ranging from three to as much as ten.  (I.e., the doctor may bill $100 for a service but agree to accept a payment of just $10 from the insurer.)  In most cases this final payment amount is known in the industry as the “reasonable and customary fee.”  And even if you don’t have insurance you should not have to pay more than that.

If you ever buy medical services without insurance, make it clear ahead of time that you will pay only “reasonable and customary fees.”  Of course your first bill will probably be for the inflated amount, not the reasonable and customary amount.  I don’t know of a realiable public source for these.  I have always had some insurance, and even when it didn’t cover a particular service I have been able to call my insurer and ask them what the reasonable and customary fee should be.  They must have a secret catalog they all share.  Because I send that amount in along with a note saying I’m only paying reasonable and customary fees, and that has always been the end of the matter.

If you don’t have access to an insurer, and the billing office isn’t forthcoming with the reasonable and customary amounts, you might try contacting one of the numerous government agencies who have become involved in healthcare to ask what they expect to pay.

And this doesn’t just apply to healthcare:  I have also learned that there are industry standard fees for automotive repairs — another area where lack of information can result in bills that are many times larger than they need to be.  Here owning an extended warranty can save you the trouble of finding and applying the standard fees.  Otherwise you need to appeal to someone with access to the industry’s “Labor Time Standards” manuals, which set out the amount of time that a mechanic should reasonably bill for every conceivable service.

The value of this billing expertise is, incidentally, why I buy extended warranties for all of the cars that I keep past the manufacturer’s base warranty.  Of course, extended warranties are often an enormous profit center, so I bargain aggressively to get them near wholesale cost.