Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Wednesday, December 21, 2016

Investing for the End of the World

If you are preparing for the end of the world, you might be buying gold, guns, canned food and remote property in the foothills of the Rocky Mountains. After all, you will need to be self reliant for food, shelter, water and defense. Hone your large scale gardening skills now, because the canned goods will run out eventually.

The Fear Trades

When the market gets weird (read: goes down sharply, or at least 10%) there are a few investments people tend to reach for: Gold and long term US Treasuries are two of them, the Swiss Franc is sometimes another one. US Treasuries are generally viewed as a risk free asset. They are bonds, so you can easily calculate the value and the cash flows, and they are backed by the US Government, which is generally believed to be a reliable credit - recent elections notwithstanding. After all, why would the US Government default when they could just print more money to pay the bond.

Of course there are risks with that US Treasury bond: if the government does just need to print money to pay obligations, inflation will likely erode the value of the dollars you will receive. To understand this relationship, think of supply and demand. If there are more dollars being printed to chase roughly the same amount of goods and services in the economy, each dollar will be worth less in comparison to the goods or service it is buying. Another risk is interest rate risk. If interest rates rise after you buy the bond, the market value of the bond will decline. After all, why would someone pay the $100 that a 3% yield cost you if they can go out in the market and buy a 4% yield for the same price? This is a bigger risk with longer term treasuries. If you are planning on holding the bond until maturity, this does not much matter, but it can look bad on your account statements in mean time.

Gold and Swiss Francs are both viewed as stable money. Historically, gold was a unit of money, and until recently, the value of our dollar was actually measured in gold. As long as nothing too exciting is happening in the world, gold typically tracks inflation. This means that it preserves its real world value - this is why it is considered a "real" asset. Since it preserves it's value in the real world, if you fear imminent collapse of your nation, economy and currency system, it might be a nice way to hedge that fear. Investors typically either love or hate gold. "Gold Bugs" as they are known like that gold will be there for them even during rampant inflation or societal collapse while the haters just think it is a dumb shiny thing that doesn't do anything fun. It is possible that both sides are right.

My main concern with gold as something to hold if the world collapses is that there is no guarantee that people will take your gold in exchange for necessities like food and drinking water. If they did take it, you would probably need plenty of small change in gold, and a scale for measuring your gold flakes and dust. Tricky stuff. There is also a practical tax consequence that gains on the sale of gold are taxed at a minimum tax rate of 28% - potentially higher than your marginal bracket, particularly if you lost your job as society and the economy crumbled. If you traded your gold for food or services, you have some flexibility in how you report the value, particularly in a situation where there is no ready market for the goods. However, faithful reporting of income and expenses is a cornerstone of our democracy (which may well be collapsed at this point) and transactions like this may invite a time consuming audit (time better spent out there growing your food, right?).

Swiss Francs are sometimes viewed as a safe haven trade in weird times too. Switzerland is known for it's policy of neutrality, excellent chocolate and building bunkers in the Alps. It can be easy to confuse the safety and homogeneity of the country for real world economic or financial security. Maybe you can hitchhike to Switzerland when the world ends. Maybe your local cafe will take Francs when you venture down from the Rockies for a morning pick-me-up after the apocalypse. I'm not totally sure about this one.

There is a breed of investor that is permanently bearish. They often sell stocks short on generalized worries or keep the fear trades going even when it isn't working. There is always a crisis just around the corner that they believe, to the contrary of the built up evidence, humankind just won't make it through. These investors are the ultimate contrarians.

But How Will The World End?

The problem is, we don't know exactly how the world will end. Will it be a mild end, with stock markets functioning as staff moves computers to higher and higher floors as the oceans rise? Will it be all at once with an asteroid that we only saw a few months in advance? Will it sneak up behind us, cutting off one piece of our economy at a time, leaving us only with Twitter to speculate about what is actually going on?

Maybe the end of the world will even be less of an event than we anticipate. Maybe governments will fall peacefully and after a few years of anarcho-libertarian communes someone will have the idea to build a highway to their cousin's commune and we will come together to figure out how to pay for it, accidentally forming a government in the process.

However it ends, it may be on your to-do list to prepare for it. Let's explore what you can do with your investments.

If you believe that some environmental disaster will end the world, consider companies that are working to fight that. Depending on how long this disaster takes to play out, your companies could have a string of profitable quarters as they try to clean up the mess we have made or stem the tide of rising waters. Ecology & Environment or Clean Harbors specialize in cleanup of disasters sites as well as providing environmentally sustainable solutions to polluting industries. Companies that make solar panels or operate wind farms may be of interest too.

Maybe global conflict will be the downfall of man. In this case, we have plenty of defense related stocks that will benefit from military spending. Don't forget your personal safety, a company like Ruger or Smith and Wesson also outfit private individuals, mercenaries and militia right in your neighborhood! The chart at the top of this article implies that general equity investments may be the way to go. The article notes that bonds may have underperformed as inflation picked up during times of war.

The end of the world could come in a variety of ways. It is important that you take the time to think deeply about what you are most afraid of, and position your investments to protect against those fears in an appropriate manner.

When The World Is Over - What Does Anything Mean?

It might strike you as prudent to avoid investing in stocks. After all, stock markets can close for a variety of reasons, after the terrorist attacks of September 11, 2001 in New York, American markets closed for 4 days. If the market is closed, you may have a hard time selling your stocks so its best to just avoid them, right? Not so fast, your broker will still hold your stocks and may make valiant (or not so valiant) efforts to calculate their value and help you with trades. There is a robust over the counter network in the US and we are not so old that we have forgotten how to use phones (getting there, though). Transfer agents will be there to help brokerages affect trades on your behalf. In fact, when the global stock markets shut down at the beginning of WWI, brokerages continued to trade and quote securities prices, though clearly liquidity and price discovery were affected.

What if your brokerage is insolvent? A general financial crisis might bring down a couple of brokerages, but if you keep a paper copy of your latest statements you'll have a starting place if your brokerage disappears. SIPC insurance covers the first $500,000 of your cash and securities if your broker is insolvent. It is fairly common for larger brokerages to cover the next $49,500,000 of your account with private insurance. If you are concerned about this, you should take note of that insurer in fas you need to file a claim. It is important to note that SIPC does not protect against fraud if you never actually held the securities, or against the loss of value. They really just protect the custody function - the safekeeping and access to your securities.

If brokerage insolvency or exchange shutdown is the specific risk you are trying to protect against, try keeping your stocks all in paper certificate form. While a burglary is probably more likely to strike your home than an exchange outage, fear is not rational. I generally do not advise that people keep paper certificates. Not only are they more likely to get stolen, but they are much harder to trade and generally have much higher fee structures than an account at a discount broker. If worse comes to worse, however, you can trade your Mondelez shares hand to hand for packets of crackers and a bit of peanut butter. You would just need the certificates though a notarized bill of sale might come in handy. If you're the one receiving the shares, check with the transfer agent to make sure that you are doing the transaction correctly because you will want to ensure you receive the shares when the ledger opens back up (usually the first Monday after Judgement Day).

You might not want bonds either. Depending on the state of the legal system during and after the end of the world (let us not forget that the end of the world may be a prolonged, nine step process as outlined by Dante) companies may decide to default on their debt obligations, and bankruptcy proceedings in the afterlife could well favor equity owners if sufficient time has elapsed for you to make a claim on the assets of the company. This is a weird situation to be in, but the end of the world might have weird quirks.

An alternative to regular, registered bonds may be to look up some bearer bonds. Bearer bonds are bonds which neither the company nor any transfer agent or bank keep a record of who the owner is. Interest is paid literally to whoever holds (bears) the bond. Generally you clip off a coupon and mail it in for the interest (this is why interest payments on bonds are called coupons). You still have the risk that someone steals the bond, but at least they won't hack your account password. Bearer bonds are a little bit frowned upon these days, but they do still exist. If you find some from a company or government with excellent credit, and good chances of surviving the apocalypse, you may be able to get them at a good price in the turmoil. If people don't put a premium on tax evasion, yet haven't realized that the bonds are still money-good, you might get a good deal on them! Keep in mind you will have a small window between the realized apocalypse and the next coupon payment, which will be a reminder to the owner that they still have something of value. Act fast to get the best deals. Try eBay.

So securities are a mixed bag and you can't trust your broker to hold GLD for you as you are raptured. How are you supposed to invest in the the most fearful of investments - gold? We've already discussed the tax implications but maybe you are counting on the IRS being out of commission as well. That is fortunate for you, just watch out for the marauding charms of magpies.

Practical Tips On How To Prepare For Huge Change

Several years ago I had the opportunity to hear from a fund manager about his vision of the end of the world. It was a combination of financial and societal collapse, peppered with cute anecdotes about him darning his socks on the flight over. It was all a bit surreal, looking back. In the event of huge shifts in society, government or economy, self reliance was the most valuable thing. He was impressed that I was an avid cyclist and gardener and a little taken aback that I (at the time) had chickens in my backyard. I think this put me in an elite tier of those who were truly ready for the worst.

He did give me an interesting way of looking at crisis. His vision was one where inflation made financial transactions difficult, eroded trust and decaying infrastructure limited the use of online shopping or use of credit. Self reliance was indeed the investment to make.

Part of self reliance is frugality - if you spend most of your time, money and effort eating out and paying other people to perform tasks around your home, you are ill prepared for a time when those services aren't available. While you don't necessarily need to move to the foothills of the rockies and stock your bunker with canned goods, learning to take care of a home you own and grow and prepare your own food has value in itself. Physical skills are not only useful in a pinch, but are imminently traceable in the current economy and possibly the next economy.

A collapse of the financial and economic order does not mean that you need to have alternative methods of payment handy. Your bitcoin will do you little good if there is no electricity or internet. Instead, build your social capital and help others build theirs. Knowing people who have resources or skills you may need will be valuable. Don't just network to build your professional prospects - strengthen your useful social network. Befriend a handyman or an expert food preserver or someone who has had so enough outdoor adventures that surviving while lost in the woods is second nature. In countries where persecution of individuals based on some belief is more common, strong social connections are useful when seeking refuge from a monstrous government. Where goods and services are hard to get, tight knit communities must provide for each other.

People often put an over-emphasis on real assets, but the choicest bit of land or the shiniest gold coin will not save you if there is no rule of law. Having useful skills and a community that you contribute to will serve you well when your house, or country, burns down.

I don't know what the end of the world will look like, and I haven't bothered to calculate how likely it is to end, but preparing for it, by bettering yourself and others around you, should pay dividends in the current economy anyway.

Thursday, December 15, 2016

Managing Finances with your Partner!

Y'all my sister got married last year! This was a lot of fun.
Photo Credit to the amazing Bonnie J Heath Photography

You and your boyfriend/girlfriend/romantic partner/flame/sweet heart/babe/one and only/spouse/significant other/mate/husband/wife/better half/lover look great in pictures, but what does your financial picture look like? I’ve heard stories of people bringing up finances on a first date, or even in a Tinder profile, but that is generally monumental jerks bragging about how much they make (read: exaggerating) but that is probably a little too soon. On the flip side, I have heard of people not finding out about significant debts until after the ceremony. If you are trying to figure out an appropriate time to bring up finances, try some time in between these two examples.

In all seriousness, it is never too early to start. When you first start dating, there may be some pressure to make a date particularly nice. If your taste falls either more expensive or more frugal than your partner appears, bring it up! Tell them that you appreciate the steak and wine for dinner but you don’t mind a modest night in with takeout and the latest Netflix original (Last Chance U or The Crown, for me right now). If you’re tired of peanut butter sandwich “picnics” in the park, propose something more your style. This can get the conversation started about expectations on spending.

Your first big trip or project together will be a big expense too. Absolutely talk about how you will pay for it, and how you will approach paying for it later. If it is clear that one partner makes the bulk of the money, understand what that money pays for and what it doesn’t. Discuss how you expect large expenses to play out in the future as it unfolds.

For a more precise time to talk about things like income and retirement savings, try April 15th. I only slightly kid here. April 15th is when taxes are due, so the topic is fairly natural then. If you’ve started talking about the future, it is appropriate to start discussing how to pay for that future.

Managing money as a couple starts with looking to see where your goals and values agree and where they don’t. When you share finances, it is important that your large, long-term priorities align. This is probably reasonably important as a couple, but you’re not here for relationship coaching. When it comes to meeting large long-term financial goals, you need all the help you can get and your partner will be just as important as you in meeting them.

What are our shared goals and values?

If finances have come up in your relationship, other goals and values probably have as well. Do you love to travel? That costs money. Do you have your eye on a house in the suburbs and 2.8 children going to your alma mater? You’re going to have to pay for that somehow. Do you want to live in a van, travel the world and live a minimalist lifestyle? That is probably inexpensive, but definitely will involve financial decisions. As a couple, figure out what you value enough to spend your hard earned money on. What do you value enough of your partner’s goals to spend your money on. What do you want to spend their money on?

A saver can get along with a spender, but you need to be clear about your limits. A saver may not want to subsidize the spender too much, but as a couple you will be spending on each other to some extent. As a couple with shared goals and expenses, you will need to compromise if your habits are wildly different.

No matter how little you think you know about finance or how much you trust your partner to handle it, it is very important that each partner keep informed of the couple’s finances and also have your own money. Retirement accounts are an important part of having your own money, but also a savings or taxable investment account that is your own is important for the unknown. This is not about keeping money hidden from your partner, but about ensuring that you can stand on your own if an expense comes up.

Whoever handles more of the day-to-day financial responsibility should also be responsible for keeping their partner informed of the couple’s financial situation. Far too often I have seen recently widowed or separated partners overwhelmed with the mass of new information. I have seen people get taken advantage of or simply make sub-optimal choices because they didn’t know what all they had and could do with their finances.  Each partner should know what regular expenses you share, how much they are and how they are paid. Each partner should know what assets and debts the couple and the other partner has. While you may not have access to each other’s accounts, it is important to know what the account is for and what will happen to it if the other partner dies.

So, where exactly does this money go?

The technical aspects of how your money will flow through accounts and who will own what should arise out of how your value and goals align. There are three basic options for how you handle joint finances: either each person has their own taxable accounts and their own money and every expense is handled according to some rule or ad hoc agreement, the couple shares everything in a jointly owned account or somewhere in between. Note that retirement accounts are always in each individual’s name.

Firstly, every couple needs to understand their shared expenses and agree on a clear and fair plan for paying them.
  • The technical workings of this will depend on what makes sense to you, but one way would be to have a joint checking account that you each contribute to. Each partner contributes his or her share on a regular basis. Another method is just assigning different expenses to each other. If this is the route you take, keep in mind that expenses can change so it is fair to take a look at these on a regular basis to make sure each partner is happy with what they are paying.
  • With regular expenses it is very important that communication be open, honest and frequent. Since most expenses occur on a monthly basis, take the time to go over expenses and contributions at least that often. This is a good time to make sure that you are still on budget and talk about any financial issues that have come up.
  • There is no right or wrong way to determine a fair contribution. If one partner makes substantially all of the money, it may make sense for them to contribute most or all of the money for expenses. If incomes are roughly equal, an even split makes sense. Determine what works for you. In general, the split matters less the higher your income is above your joint expenses. For example, if your joint expenses are $2,000 per month and each partner makes $1,000 per month there are not many ways to make that split, but for the same level of expense and each partner making $10,000 per month, neither may care that much how much they have to contribute. For meaningful, but unequal incomes, a fair method may be to do a rough ratio. If one partner makes $10,000 per month and the other makes $4,500 per month, the partner with the lower income could contribute one third and the partner with the larger income could contribute two thirds of their joint expenses. It doesn’t have to be difficult or terribly precise so long as each partner is understanding and happy with the outcome.

Keep in mind, retirement accounts are only owned by a single person, so each of you should max these out to the extent that you can. These accounts will depend partly on what is available at work so you may not have a lot of control over it. In the case of drastically different incomes, it may make sense for the spouse with the higher income to contribute to shoulder more regular expenses to allow the other partner to contribute more to their retirement plan. Outside of work retirement plans, you should max out personal retirement accounts if possible. This is an important part of the money that is individually owned.

If your financial values are quite different, it will become more important for you to have your own money. It is difficult to have two people sharing an account if they view it completely differently! In this case, money that you save beyond regular expenses, shared goals and retirement accounts should be kept in individually owned accounts. This can be savings or investments. With different values, each partner can treat their money differently; one may chose to spend and the other to save.

But, but what if...?

Following a careful budget for joint expenses, couples should have an emergency fund for joint expenses. The size of this will depend on what an emergency would mean to you. Ideally, it would be able to cover insurance deductibles and the loss of at least one of your incomes for a few months. Keep this money in a jointly held account somewhat separate from your checking account.

Do you need insurance? The way I approach life insurance needs for a couple is by asking this “If one partner died, would the other partner be in significant financial distress?” The answer will be clearly yes if there is a huge income disparity and a lot of debts in the relationship. The answer may lean to no if incomes are roughly equal, expenses are manageable by one spouse and there are plenty of assets to help out in a pinch. If you do need insurance, consider cheap term life insurance and avoid expensive whole or universal life policies.

Again, it is important that each of you have your own money. While you may think this is just for separation or death, this is not the case! If you generally share expenses, but one of you needs an $800 car repair, how would you handle it? If you have your own savings and a clear plan for sharing income, this should not be a problem. If one of you spends heavily on nights out with friends, or only one of you wants to go to your alumni weekend and football game, you need to be prepared to cover that expense on your own.

How does this all come together?

There is no one perfect way to manage your personal finances and there are plenty more ways to manage finances as a couple. The important thing is that you find a method that works for you. If something isn’t working right, have an open and honest conversation about it. Just because you decide to keep some things separate does not mean you have to keep them hidden.

If your financial values are very well aligned it may make sense to simplify things with a joint account for the bulk of the rest of your money. The more aligned goals are, the more you can share actual ownership of money.

Decide on what is personal and private. Understand that it is OK for either partner to have money that they have unfettered access to. This does not mean you must keep your spending private – just that you have an account you can spend from without your partner’s permission or judgment. Honesty and transparency are often good for relationships, but again, this article is about money. It is probably easiest if personal spending is done from an account that is held in one name only.

Establish clear rules about personal and private spending. As a couple, you are a team and the decisions one partner makes do affect the other. You may want to keep tabs on each others spending so that it doesn’t get out of hand, but don’t be judgmental of specifics as long as your partner can afford it. Every relationship has boundaries, and that certainly extends to your money!

Make a plan for your long-term goals. Ideally, these will be quite similar for you. If one of you plans on buying a house and having kids it might be a little troublesome if the other partner is not on board. Financially, you will need to work this out.

Writing everything down helps. You will have some goals that are individual goals or values and some that are shared, or unique to you as a couple.  Buying a house and sending children to college are huge expenses and are things that really ought to be shared values. As shared values, they will probably be shared expenses. Both partners should know how to pay the mortgage and know what account is for college savings.

However you decide to manage money together, open communication is important. You both need to be clear about what your income and expenses are now and how you expect those to change in the future. It is also important that you understand how each other views the money they have and prioritizes spending. While you don’t have to contribute every financial goal your partner may have, it is important that you share what they are so you can support each other along the way. If you have any debts that may affect your partner, let them know and have a clear discussion about how you plan to deal with it. Lastly, financial management is an ongoing thing, have a regular date set up to review your situation and talk about major changes as they arise.

As a couple, you need to figure out your goals and values, decide on an approach to your finances, and keep each other informed along your journey.

Friday, December 02, 2016

Figuring out loans and insurance with a new car purchase

The first car I owned was a 1999 Cadillac de Ville. White with blue leather interior. I could fit four adults comfortably on the front seat and the trunk was spacious enough for me to move into my first house in two trips. Unfortunately it was of an era less austere than now and that showed in its thirst for gasoline and oil. Frequent, expensive oil changes would frequently turn up expensive repairs  related to the oil. The car's history (it was once the unstoppable force that collided with a somewhat movable brick wall) also made it a looming liability. I swung the opposite way when I bought a Prius this past summer.

A quick note on leasing vs buying. When you are leasing a car, you do not own it. This will often give you the lower monthly payment but be very careful evaluating the deal. Traditionally, leases lower your monthly cost but raise your overall cost. However, sometimes manufacturers craft lease deals very attractively to entice more people to pick up their cars. Look at the total amount of payments and the purchase price at the end of the lease before jumping on one of these. This article will focus on the loans attached to a car purchase.

Unless you've saved up for a cheap used car you are probably going to finance your purchase. As always with debt, don't let the availability of cheap money tempt you into buying a more expensive car than you can really afford. Cars dot com has a great Affordability Calculator that you should have a look at before you even think about what you want. Plug in a reasonable monthly payment that works with your budget and see what the maximum you can pay is. The main unknowns will be the term and interest rate. The term is the length of time you will be paying the loan and the inters rate is the cost of the loan. For calculation purposes, check a fairly short term like 36 months.

But what term should your actual loan be? Having a longer term reduces your monthly payment, but sometimes can raise your interest rate and raise the total amount you end up paying. You will likely be offered a range of term options. Common terms are 36, 48 and 60 month, though longer and shorter ones are sometimes available. There is no hard and fast rule on how long of a term you should have, but the 36-60 month terms are a sweet spot. If you get a term shorter than 36 months, it may make more sense just to save up for the car instead of borrowing for it. Anything longer than 60 months is risky because of what can happen in that amount of time. In 5 years, you could change your mind about the car, get into an accident or just need a new car. Having to pay a loan on a car you don't want to own is not a good feeling. Additionally, you are generally required to carry comprehensive insurance the entire time you have a loan on the car. Comprehensive insurance can be expensive. If you wanted to lower your car insurance costs (especially on a car several years old) you wouldn't be able to with the loan still there.

What if the interest rate is too high? Auto loans are somewhat uniform, but there is room to play. The lowest rates you will be offered are often at your bank or a larger dealership. Checking with your bank what their rates are is a good practice anyway so that you know what to expect. If you are not offered something comparable, you know you have better options. If you cannot get a good interest rate anywhere, you may need to revisit the affordability of the car altogether. Extending the term on a high interest loan just to lower your monthly payment drastically increases the amount of interest you pay.

With new car purchases, zero interest loans are offered to get cars off of the lot. These are often juxtaposed against cash back discounts. How do you decide which one is worth it? Look at the total payments you will make under each plan. Part of this may be determined by the monthly amount you can pay. The total amount paid, including interest and taking into account any discounts or fees, should give you the best comparison between offers.

What other costs are there with a new car? When you buy a new car, you will also have to pay a host of taxes and fees. Depending on your state and local area tax structure, this could end up being quite a lot. These add to the total cost and can sometimes be financed for convenience. Ask the dealer what sort of taxes and fees will be involved before you commit to a car. While they won't be perfect until the calculations come back on your final price, there is no reason they cannot give you a good idea to keep in mind while shopping. Subtract fees from your maximum cost before continuing.

Keep in mind that some taxes or fees are annual. You will also have to get insurance. If financing the car, you will need comprehensive insurance. Check with your agent or an online outlet (most compare prices across insurers) to get an idea how much your monthly payment will be. Keep this in mind when calculating your affordability.

How do I reduce these costs? The  biggest cost will be the price you pay for the car. Keep in mind that the sticker price is the dealer's starting maximum, so don't rest until you've gotten yourself a discount on that. I won't tell you how to negotiate - there is plenty of that online - but just do it. I've heard of people sending written requests for a specific vehicle to dozens of dealerships and just seeing who gave the best deal, I personally just happened upon someone who needed to hit a quota at the end of the quarter and negotiated against himself as I silently test drove the car. Maybe it works best to buy when it is raining, maybe only when it is above 75 degrees, perhaps Tuesdays are best but maybe that is only if you wear blue. Whatever you do, work to reduce the price you pay.

So to get a good deal on my Prius, I did my research and made a spreadsheet to calculate the value of all of my options. I knew what I wanted when I walked into the dealership. I used the same insurance company I have had for a while because the transition was seamless. I had already gotten a quote for my new insurance rates so I was prepared to deal with the cost. I had a good idea what rates were available from my bank and other lenders, and was pleasantly surprised when my rate came in a tiny bit below that.

The biggest price difference is between new and used cars. You probably know that used cars can be much much cheaper than used cars. The amount of depreciation, or value lost, by a new car varies between makes and models, but it can be a significant amount of the price of the car. I was able to get a $25,000 car for less than $17,000 even though it was only six months old. That is savings that I couldn't have gotten just through negotiation. When buying any car, you are buying the future miles you are going to drive on it. For the same price, a car which is expected to drive more miles will be worth more to you than a car that won't make it as far. This makes new cars more valuable, but there is also a "new car premium" that can't be explained in cold dollar terms. If you don't have a hugely emotional connection to your car, you can save a lot of money buy shopping used.

When looking at used cars, you will need to do more research. Check Consumer Reports reviews to see if any particular year was more problematic than the rest. For a car that has been produced for a while, redesign years in which they made a lot of changes are often have the lowest reliability ratings. Avoiding those particular years can help you avoid potential problems lurking under the hood.

You will be required to carry a minimum liability coverage on your new car. This is the most basic level of insurance. Liability insurance covers damage that you cause to other people, their property or vehicles in an accident. If you are worried about being hit by an uninsured motorist, you can get fairly cheap uninsured motorist insurance that will cover damage to your property or person in the event of an accident.

Beyond the basics, there is Collision and Comprehensive insurance. Collision insurance covers damage to your own vehicle even if you cause the accident or the other motorist does not have adequate coverage. Collision insurance covers your car, so the value of it is limited to the value of your car. Comprehensive insurance covers other damage to your car, and may include theft, vandalism and damage in a disaster. If you have a loan on your car, you may be required to keep comprehensive and collision insurance on the car.

Your insurance may come with some hidden benefits. It is fairly common for insurance to cover some sort of roadside assistance. Many comprehensive policies will give you a free windshield repair each year. My policy also covers replacement of keys and any harm to pets in an accident. These extra benefits may be repeated elsewhere too, so check your policy to make sure you are not paying someone else for duplicate coverage.

Buying a car can surprise you with hidden costs and fees and options, but it is often very necessary. Do plenty of research beforehand so that you know what you are getting into and you can reduce the price you pay. Make sure you get the necessary insurance, but don't pay for coverages you do not need. Once you have your car, take care of your regular maintenance to avoid surprise repairs and your car should take care of you.