From the start, the math didn't add up.
My wife, Kathy, and I were headed to France for a half year. I'd be on a paid sabbatical, but Kathy was retiring, and we weren't ready to tap her Social Security. Even with our house rented at a discount, complete with our golden retriever, the basic addition looked daunting:
Overall income: Down 40 percent.
Basic expenses: Up at least $1,000 a month.
Outlook: A bit scary.
Still, this would be that "trip of a lifetime," so we didn't want to scrimp either. No hostel hopping. No sleeping in a VW van. No diet of sprouts and beans. (Though we may be in our 60s, The '60s ended long ago.)
Instead, we planned early and budgeted about $2,500 a month from retirement to cover what my income wouldn't. It still meant scaling back some plans. But, so far we're living within our means, and not feeling the least bit deprived.
So if daddy didn't leave you a trust fund, you itch to see the world and you favor long-haul travel with a dash of comfort, here are a dozen ways to make it happen:
Travel costs increase in direct proportion to the speed at which one moves. Gas alone in France, for example, costs nearly $9 a gallon. Trains are pricey, too. We chose to live in one place, Aix-en-Provence, a city of about 140,000 in the South of France, for five of our six months here, settling for occasional day trips out of town.
2. Rent with care:
It's one thing to weather a bad night on the road. It's quite another to hate coming home for months at a time. I began scouring rentals on sites such as homeaway.com, vrbo.com, airbnb and sabbaticalhomes.com a year before we left. We wanted someplace in easy walking distance of the old city, with an extra room for guests and work, and an outdoor patio. After carefully reading renter reviews, we choose a three-bedroom apartment on a quiet street (found on homeway.com, which unlike some services, doesn't charge renters).
The apartment isn't cheap -- about $1,775 a month now with a weak dollar. But it's less than smaller apartments in city center, and it comes with morning serenades by the local birds.
3. Avoid big cities:
Everyone loves Paris. We're no exception. But we chose Aix for its slower pace and more reasonable costs. It's a city with just about everything -- daily markets, movies, outdoor cafes, concerts, bookstores, scenic walks, good restaurants, a smattering of museums and squares that positively ooze ambiance. It also, usually, has plenty of sunshine. And all this at a fraction of what will tumble from your wallet every day in that city on the banks of the Seine. We'll spend a week in Paris and love it. But smaller cities are still plenty of fun.
4. Cancel everything you can before you leave home:
We shut down our phones, parked our cars, cancelled Netflix, a French-language TV station, my school parking space and newspapers. It adds up.
5. Get credit and debit cards that don't charge a fee:
Most cards tack on a three percent overseas transaction fee. Not Capitol One.
6. Keep track of daily expenditures:
This allows us to both check ourselves and reward ourselves. It takes little effort. I keep a running tally in a notebook I keep in my back pocket.
7. Eat out at lunch, not dinner:
One of the pleasures of life in France is the food. So although Kathy cooks most of our meals with the riches of the daily marketplace, we treat ourselves to a couple of meals out each week. On those occasions, we usually eat a big mid-day meal. The formule at many restaurants -- a main course, entrée or dessert, and a glass of wine -- is perhaps 50 or 60 percent the cost of an evening dinner. The portions are as large and the food just as good.
8. Look for little local places, too:
At Le Brun'ch, on Rue Portalis, the food is fresh and the language of choice French. A slice of quiche -- spinach, mushroom or the special of the day -- costs $3.20 and makes a lovely light lunch. Hungry? The plat du jour is $11. And a bottle of water sits on every table (You can always ask for "une carafe d'eau" in France. Don't pay for sparkling water.)
9. Leave the driving to others:
Being car-free makes us carefree. We have no parking costs. Pay no insurance or tolls. Buy no gas. We've already taken bus trips with our language school to Nice and the Luberon mountain towns of Provence. We've visited Marseille on our own and will again this weekend. The full-day bus trips cost us $35 each (gas, tolls, parking and rental would have been more). And the roundtrip fare to Marseille costs about $14.
As spring arrives, we'll need a car to do more research for my blog, slowlanetravel.com. We'll probably rent one for a couple of individual weeks and the month of June. But six weeks costs a lot less than six months. And we do not miss driving at all because we can walk everywhere.
10. Shut down your smart phone:
We call the States by Facetime or Skype. Email to email calls are free. For a pittance, you can buy a Skype "phone number" that allows friends and family at home to dial a local number to call overseas. For local calls, we've bought cheap phones for less than $40 each, and monthly phone cards that cost $28 each. The overall cost of calling anywhere in France is half of our monthly Verizon Wireless bill at home.
11. Trade off with friends who visit:
We have a simple rule for visitors. We'll house you and feed you if you rent a car. This gives us the chance to see more places off the beaten track when friends come to town.
12. Don't fritter; do reward yourself:
It's the little things that burn a hole in your wallet: The $5 you drop on coffee because you get it with cream, the $3.50 cokes you don't need if you carry a water bottle, the overpriced vendors in the market because you haven't comparison-shopped. Drink wine; it costs so much less. And be selective. For example, we went to a lovely free concert of Bach cantatas, but passed on $55 seats to the Mozart Requiem. I pay $10 for a weekly four-hour bridge game. We walked to the park where Paul Cezanne painted "Mont St. Victoire" for nothing.
But do reward yourself. Every so often, Kathy and I simply have to stop by Bechard for a pastry filled with whipped cream and fresh fruit. Yup. Each one costs $4.50. But you can't buy these in Boston. Anywhere. And without food, without wine, you might as well not be in France.
Warren Buffett has said time and time again that he likes making investments within his "wheelhouse". This means investing strictly in the sectors and companies you understand.
The stock market is, however, a vast field of opportunity, and investors of all standing should always be looking to expand their knowledge base.
Insurance companies are undoubtedly complex in nature; however, I'm going to walk through three quick tips to better understand companies like Markel (NYSE: MKL ) , W.R. Berkley (NYSE: WRB ) , and American International Group (NYSE: AIG ) .
1. What kind of insurance are they writing?
We live in a world filled with risks. Those risks, however, come in many different flavors. Some we all deal with, and some are a little more specialized.
For your average, run-of-the-mill, risk Allstate has you covered with products like personal property and casualty insurance, life insurance, and retirement and investment products.
On the other end of the spectrum is Markel and W.R. Berkley. These businesses write specialty insurance – which is essentially "hard-to-place risk".These tend to be more expensive niche plans that can cover anything from earthquakes to fine museum art.
AIG falls somewhere in between. The massive company covers everything from the mundane to the highly specialized.
2. How profitable is the insurance company?
While there are some exceptions to the rule, it's best to find companies with a history of strong underwriting. This means collecting more in client premiums than the company has to eventually pay out in claims.
The simplest way of determining an insurer's underwriting profitability is looking at the combined ratio.
When the ratio is above 100% it means the insurer took an underwriting loss, and the lower the ratio is under 100% the more profitable the insurer.
Combined Ratio - 2008 to 2013
*Combined ratio is GAAP and based solely on AIG's Property and Casualty (P&C).
The chart may look a bit confusing, but let me direct your attention to a few key points:
- AIG has taken underwriting losses five years running, which is definitely a concerning trend.
- Markel has been fairly volatile, but has posted profitable underwriting four out of the last five years.
- W.R. Berkley looks like the clear winner, and has continued its strong performance into 2013.
3. How is the company investing its float?
The collected sum of insurance premiums are referred to as a company's "float". While some of the money will eventually need to be paid out in claims, this money is able to be invested in the meantime.
The insurance industry, however, is highly regulated and companies are obligated to maintain a sizable amount of liquidity in order to pay customer claims.
It's for that reason all three companies allocate more than 70% of investments into fixed securities like: government bonds, mortgage-backed securities, corporate bonds and the like. These tend to be lower yield and safer investments.
The companies diverge when it comes to investing the other 25% to 30%. The most glaring difference, though, is the amount of capital allocated toward equities.
W.R. Berkley and AIG have approximately 2% and 1% in equities, respectively. Markel, however, allocates closer to 20% of its investments.
That huge difference showed in 2012 as Markel's Chief Investment Officer Tom Gayner was able to return 20% on these equity investments. This helped push the company's total investment yield to 9%.
This is compared to W.R. Berkley and AIG's returns of closer to 4% in the same time.
Investors should keep in mind that equities can be much more volatile and therefore could have a greater impact on Markel's bottom line – but in the long-term they have proven to have the best returns.
Preparing for Fourth Quarter Earnings
W.R. Berkley was the first of the three companies to report full-year 2013 earnings. The company saw an 11% increase in premiums and an improvement in combined ratios. However, net investment income and earnings per share decreased year-over-year.
AIG will report earning on February the 13th, while Markel will most likely release earnings between the third and seventh of February. Investors would be wise to keep an eye on each company's combined ratio and net investment income.
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