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Life Insurance

November 26, 2008

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

October 8, 2008

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

October 1, 2008

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

September 26, 2008

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

September 26, 2008

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

September 16, 2008

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.