Why You Can't Beat the Stock Market Through Active Trading

By John F. Wasik (Reuters)

The days of you trying to make a buck actively trading in the stock market are over.

Individuals don’t stand a chance anymore because they are largely competing against rational machines often guided by herd-like irrational forces. The robots can rule in the blink of an eye.

I’m not spouting lines from an Isaac Asimov novel, but citing reality. The machines and people who program and profit from them have won — for now.

I knew it was over for human traders when I heard that high-frequency trading firms were hooking up their data lines directly to exchange computers to gain an extra hundredth of a second in execution time.

High-speed programs are designed to move millions of shares in a fraction of a second to take advantage of small movements in securities prices. These algorithms are ideal Wall Street workers. They don’t need health insurance and you don’t have to pay them bonuses to help finance their Lamborghinis or homes in the Hamptons.

There’s no way to beat the machines, unless of course, you have a faster machine, better programs or the ability to predict the future. Your odds are better in Vegas, which never had great odds for a palooka pulling a one-armed bandit.

Who are you trading against when you take on the machines? Any entity from a boutique investment firm with a handful of “quants” — math majors who flocked to Wall Street for the big bucks — to a mega-bank or hedge fund. Some 60 percent of the volume of the New York Stock Exchange is attributed to high-speed trading, maybe more.

Although many market observers blamed machine traders for a flash crash last year, regulators have done little to slow down these speed demons.

Machine traders don’t even need a human analyst to pull the trigger on trades based on the day’s news or price changes. Who watches CNBC any more in these firms? They don’t have to: Machine-readable feeds from all of the news services and exchanges go right into their computers and trading decisions happen without much direct human intervention.

The trading floor is becoming as relevant as the telegraph system.

That’s why will see even more flash crashes and huge price swings called “mini-flash crashes.”

The only perennial truth about the stock market is that it will remain volatile and virtually unpredictable because it’s based on the mass actions of millions of people. It’s like trying to predict the direction of a giant school of dumb fish.

Every day, even more money is chasing potential price swings at the speed of light all over the world. The more traders adopt these systems, the greater the chaos.

There are, of course, various ways of protecting your money from the market madness. Crafting a low-risk, long-term portfolio allocation of stocks, bonds and alternatives for your age, lifestyle and risk profile is one way.

For long-term stock investors, you’ll be better off in exchange-traded funds like the Vanguard High-Dividend Yield fund or the SPDR S&P Dividend fund. Both offer a portfolio of high-dividend paying stocks.

You can also create a high-dividend portfolio of your own, but you’d need to diversify across at least a dozen industries to buffer sector risk.

Dividends generally aren’t impacted by high-speed trading. If a company has sufficient earnings, they cut you a check every quarter. Once you create your portfolio (with individual stocks), you’d enroll in dividend-reinvestment programs to buy new shares on a regular basis on a dollar-cost averaging basis. That would ensure you wouldn’t be buying in at the market peak. The majority of these programs allow you to buy new shares commission-free.

Don’t even try to time the purchase of your stocks, because Washington will do nothing to protect you against huge market swings.

Wall Street is spreading plenty of money around in lobbying efforts to make sure that their trading desks don’t get regulated in any meaningful way. Sated with financial services industry contributions, House Republicans have already spent most of the year trying to kill Dodd-Frank financial reforms, so high-speed trading isn’t even near the top of their agenda.

So my advice couldn’t be more succinct. The best way to beat the machines is pretty simple: Don’t even play them. Game over.

Tea Party Unpatriotism

The Tea Party’s “blue deal” for America

By John F. Wasik
Reuters

Imagine being elected to government even though you’re openly hostile to it.

Such is the perverse arrangement the Tea Party has with the electorate, which is foisting a “Blue Deal” on Americans. As opposed to a “New” deal or even “Square” deal, the Blue Deal and its prolonged pain will hurt most middle-class Americans through higher costs in retirement, health care and public health.

Tea Party affiliates’ nonchalant posturing on the potential debt default influenced the Standard and Poor’s decision to downgrade U.S. debt and the ensuing turmoil.

Now that the Congressional super-committee has been named to begin

cutting more government spending — and hopefully raising revenues — it’s time to craft a balanced agenda that will preserve social programs while cutting government waste.

The Tea Party’s brash intrusion into U.S. politics was a needed wake-up call, although the movement will be more destructive than productive if it doesn’t create a tide that lifts all boats. Here are the major stumbling blocks that need to be addressed head-on by the committee:

Being the World’s Cop. If Congress is truly interested in the kind of debt reduction the ratings agencies and markets will take seriously, it has to end its role as gendarme to the world’s hotspots. Rep. Barney Frank (D-Mass.) said as much on Tuesday in a National Public Radio interview in which he was cut off before he had a chance to fully explain why. Frank said overspending on needless military expenses is one reason U.S. debt was downgraded by Standard & Poor’s. Nobel Prize winning economist Joseph Stiglitz estimated in 2008 that the Iraq and Afghan wars will cost the U.S. at least $3 trillion — double the cost of the Korean War and outpacing the 12-year Viet Nam war. Pull out of these countries and reduce spending on forces in Europe and Asia and Congress will not have to touch social programs.
Deregulation Will Cost Money and Lives. The epic dismantling of government regulation by conservative GOP members is going to result in more deaths and higher costs for everyone. Ralph Nader, who knows more than anyone how consumer regulation works, noted that at least 150 million workers will be adversely impacted by cuts in workplace safety and health regulation. There’s more: ”There are 307 million eaters in America,” Nader states. “More than 7,000 of them die from contaminated food and more than 300,000 are hospitalized each year. The Tea Partiers pushed cuts through the House to the already underfunded FDA food safety programs.” Add to that the assault on investor protection, unions, bank regulation and environmental protection, and it’s difficult not to conclude that the Tea Party’s unrelenting hostility toward government watchdogs will largely hurt the populace.
Tax Expenditures Cost the Treasury Billions. Tax breaks such as mortgage interest and health insurance deductions take away up to $1 trillion from the Treasury every year and do nothing to promote affordable housing or health care. Conservative economist Martin Feldstein at the Bureau of Economic Research proposes capping all personal write-offs at 2 percent of annual gross adjusted income. He estimates that would raise annual tax revenue by $278 billion annually. Isn’t this a tax increase? While those making $500,000 a year would likely pay $40,000 more in taxes, taxpayers in the $25,000 to $50,000 range would pay only $1,000. The theme here is restoring progressivity to the tax code instead of raising rates. The wealthiest taxpayers don’t get to lard up on breaks that most of the middle class won’t benefit from. In any discussion about taxes, the Tea Party needs to recognize that fairness in the tax code can partially eliminate the cuts in education and health care. Needless corporate breaks that don’t create any jobs and rob the Treasury should also be on the chopping block.
Rebuild the American Dream. A new social contract is needed. A mindless slashing of every government program isn’t the answer. Social Security and Medicare are enormously successful social programs that have kept millions out of poverty. When you cut benefits, the math is simple: It will increase costs for the retired. If anything, these programs should be expanded to cover more people. Government should be in the business of saving money on hospital stays, medicine and retirement fund management. Social programs should be part of a separate discussion that doesn’t demonize them and implements meaningful cost controls reached by a consensus of Americans. Another dialogue should begin on how to create jobs and involve the private sector, which is sitting on more than $3.6 trillion in cash. Activities that are harmful to society — such as pollution, junk food, smoking, gambling, alcohol and trading speculation — should be heavily taxed. Use the revenue to create 21st Century jobs that pay a living wage and fund public education and clean energy.

Compromise and social progress need to have a seat at the table. The alternative: Chaos, economic despair, social unrest and a lower standard of living. We need only look to the streets of England or the Arab world to see how gross social inequity eventually translates into anarchy.

iBank: The Time is Right

By John Wasik

We have iPhones, iPods and iPads. Why not an “iBank?”

This wouldn’t be an electronic gizmo that’s obsolete in a year, though. It would be a public-private partnership to bolster America’s infrastructure. It will create jobs, cut the deficit and repair what needs to be fixed all over the country.

An infrastructure bank, or iBank, solves a lot of problems without busting the budget. Instead of providing direct government grants or earmarks for specific projects, loans are made by a government-banking entity.

The U.S. is inexcusably late to the game on this time-tested idea. The European Investment Bank has financed some $350 billion in projects from 2005 through 2009. China spent 9 percent of its gross domestic product — also roughly $350 billion — to build subways, highways and high-speed rail in 2009 alone. Brazil invested $240 billion over the past three years.

The idea is not without high-level support. President Obama recently called for the creation of an iBank. In backing a U.S. iBank, Senator John Kerry of Massachusetts testified last year that “a national infrastructure bank will make Americans builders again.”

If the iBank became reality — and really it’s a necessity to compete in a globalized economy — there’s no shortage of projects. According to the American Society of Civil Engineers, more than $2 trillion is needed to fix U.S. bridges, dams, waterways and wastewater plants.

The sheer scale of a big fix is staggering: Some 69,000 bridges need to be repaired. The outdated electrical grid needs to be modernized everywhere. You can build solar plants and windmills all you want, but if you have no power lines to transport the electrons from the deserts and plains, you’re whistling in the wind.

Several spin-offs of an iBank have been floating around for years, and the idea already has support across the political spectrum. A “Clean Energy Bank” would fund solar energy equipment. Sen. Bernie Sanders of Vermont, supports legislation that would install 10 million roof solar panels. Sen. Mark Kirk of Illinois proposed a “Lincoln Legacy” infrastructure bill.

How is the iBank different from just handing out the money to each Congressional district and letting the local representative decide where the money should go?

In Kerry’s vision, federal dollars would be matched with private dollars from pension funds and endowments. Kerry told the Time’s Joe Klein recently that “a $10 billion federal contribution will leverage about $640 billion in private investments.” Kerry claims he has support from business, labor and Republican Senators.

Instead of doling out pork-barrel funding for bridges to nowhere, an independent board would decide which projects are needed most. It’s the inverse of a military base closing commission. Instead of shutting down facilities, this entity would greenlight and finance the most-worthy projects.

One thing an iBank wouldn’t be is another big-check stimulus plan, which Congress passed in 2009. That nearly $800 billion package was a huge fiscal band-aid to help states, school districts and wage earners through the recession. Yes, there were some public works projects that created short-term jobs, but the bulk of the money went to tax relief and the states.

The U.S. needs a new approach to economic triage. The June jobs report was nothing short of dismal as employment growth hit a wall with only 18,000 new jobs coming on the market.

Crumbling infrastructure will cost the U.S. economy nearly 1 million jobs and shave $3.1 trillion from gross domestic product by 2020, the Society of Civil Engineers estimates.

What about the budget? Isn’t there a disconnect between the current passion for cutting the federal deficit and spending money to fix America?

There’s little question that putting people to work will help the economy. Working people pay income, sales and property taxes, which flow back into communities. The steadily employed buy homes, vehicles and appliances. Increased tax revenue in turn reduces the deficit.

The iBank may be able to accomplish what a decade of personal income and estate-tax cuts didn’t: Provide the necessary public-private capital to revive the economy. Not even Harry Potter can make magic work on the U.S. economy without some significant infrastructure investment.

Payback Time for Banks

By John F. Wasik (Reuters)

It’s time for banks to pay back their debt to the rest of us

The deficit dance has been a convenient distraction for big U.S. banks. They’ve not only escaped new taxes for now, but they also are relishing their taxpayer bailout by earning robust profits.

Except for Bank of America, the major U.S. banks are doing just fine, thank you. Yet for all of the abundant generosity and forgiveness of the American people, have banks lent out enough money to Americans to make a difference to the economy at large?

No. Banks are lending less to consumers than they did in 2007, the year before the full-blown financial meltdown, according to recent Federal Reserve Consumer Credit tallies.

Outstanding consumer credit was $2.5 trillion in 2007 compared to $2.4 trillion through May of this year. Revolving credit was down fivemo percent in the first quarter of this year. Total consumer lending was down about $100 billion in 2010 and 2009 alone from 2007 levels.

The net effect was less money flowing to consumers, who are the engine of the U.S. economy. Even if you wanted to build that addition to your home or buy a foreclosed home, good luck getting a large loan from a bank — unless you have perfect credit ratings.

Banks’ bowstring-tight standards for mortgages and home-equity loans triggered the lending squeeze. The Fed’s July 13 Monetary Policy report told the story:

“Mortgage originations trailed off with the end of the refinancing wave that occurred last fall, when interest rates declined … Bank lending through home equity lines also remained extraordinarily weak, reflecting in part tight lending standards amid declines in home prices that cut further into home equity. Both credit card and other consumer loans from banks contracted, on balance, over the first half of the year.”

For taxpayers, the bailout begun in 2008 worked as a mega-banking stimulus unrivaled in history. The largest banks were saved and became bigger. Their trading profits and brokerage operations were protected. Then they were able to pour their taxpayer-enabled profits into lobbying against the needed financial reforms of the Dodd-Frank law. Undaunted, banks are still free to lend out money to credit card holders for 14 percent or more.

In the economy at large, though, layoffs continue, the housing market is still in intensive care and the Federal Reserve’s stimulus plan is a bust.

Despite their soaring profits, megabanks still owe U.S. taxpayers money from the bailout. A new study of released by the Center for Media and Democracy shows that $1.5 trillion of the $4.8 trillion in federal bailout loans are still outstanding.

An even bigger boondoggle is the government’s effective nationalization of the U.S. home mortgage market. Through the purchase of mortgage backed securities and debt from government-seized Fannie Mae and Freddie Mac, the Fed has supported the moribund housing market.

The Obama Administration has yet to put forward a plan to resolve its ownership and continued funding of Fannie and Freddie, two fiscal black holes. Meanwhile, homeowners are still getting foreclosed upon with no end in sight.

“The Federal Reserve and the Treasury have spent $1.6 trillion in a bank-shot to save the housing market by using the same financial companies that got us into this mess,” said Conor Kenny, lead author of the Center study. “That’s more than 800 times what they’ve spent directly to keep homeowners in their houses, and the banks have only made money off the whole thing.”

For American taxpayers, the social return on the bailout has been dismal. Bank foreclosures have resumed their rise. So-called “robo-signing” abuses in home purchases where mortgages are fudged to the benefit of banks also continue. And jobless claims are rising.

It’s time for banks to pay back their debt in a profound way. Yet first, an attitude adjustment is in order: Financial speculation in bank profits should be taxed to pay for education and health care. This trading tax will also reduce the federal deficit over time.

A “Robin Hood” tax like this would even the social capitalism balance sheet. Such a plan is afoot in the U.K. and it should be on the table in any larger discussion

Debt Ceiling Sellout

3 more gloomy bargains: How much the debt deal will cost you

By John F. Wasik (Reuters)

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No matter what plan Washington concocts to reduce the deficit, it’s going to cost you something. “Shared sacrifice” is in vogue, but your pain will be bigger if you’re unfortunate enough to earn wages or need social benefits.

Most conservative deficit-reduction plans shred the social safety net and cherished personal write-offs in unprecedented ways. The core elements of each proposal will pare middle-class tax breaks, Medicare and Social Security.

As Yogi Berra once said, “it’s déjà vu all over again.” The $3.7 trillion Senate “Gang of Six” plan and related iterations bear a striking resemblance to a “Moment of Truth” deficit commission report issued, and mostly ignored, late last year and pieces of a Heritage Foundation plan ironically entitled “Saving the American Dream.”

No plan will preserve or protect the American Dream as we’ve come to know it. And the powers that be don’t seem to be rattled by the potential chaos if an agreement on raising the federal debt ceiling by Aug. 2 doesn’t happen. Markets may collapse, benefits will be delayed and salaries won’t get paid if the U.S. can’t issue more debt, but the Beltway bickering goes on.

Instead, we have this power play in the form of Byzantine musical chairs. One sure loser is already ordained, though: Middle America. Let’s look at where the deficit commission, Senate and Heritage plans intersect:

“Broaden the tax base”
This is one of the most Orwellian prevarications since the coining of the “death tax.” (Have you ever met a dead person who paid a tax?) When conservative policymakers say this, they don’t mean raising taxes, they mean lowering tax rates and eliminating “tax expenditures,” like deductions for individuals.

The Senate “Gang” plan proposes three tax brackets ranging from eight to 29 percent. Currently the highest personal tax rate is 35 percent. The Senate plan would also cut the hated $1.7 trillion alternative minimum tax. At first blush, both moves will reduce revenue flowing into the Treasury and balloon the deficit. How would the Senate make up the shortfall, considering that it also cuts corporate tax rates from 35 percent to as low as 23 percent? They say: “Reform, not eliminate, tax expenditures for health, charitable giving and homeownership.” Bottom line: Your after-tax cost for healthcare and mortgages may be higher. Although limiting the mortgage interest deduction to one home and capping it isn’t a bad idea, this is not a “broadening” of the tax base. Middle class workers will pay more — unless the cost of healthcare and homeownership mysteriously drop.

“Enacting a $500 billion down payment … ”
One of the key elements of this Senate concept carves up Social Security. Instead of the current formula for cost-of-living adjustments, the Senate (and deficit commission) would substitute a “chained” Consumer Price Index. Through economic legerdemain, this new index would shave an estimated 0.25 percent annually from the current cost-of-living payments. That means a lower Social Security payment!

What about bringing more government workers into the system, immigration reform or simply raising the cap on earnings subject to Social Security and Medicare taxes? None of this is mentioned. After all, to “broaden” the tax base — at least in this perverse definition — “reformers” will reduce benefits. Note: There was no COLA paid in January due to low inflation, even though for millions of retired folks the cost of medicine, food and energy rose. The takeaway here is that “entitlement reform” means cutting benefits and raising your out-of-pocket costs for Medicare and Social Security.

“Repeal the CLASS Act”
The Senate document doesn’t even bother to explain what this is, but I will. The CLASS Act was one of the better ideas to emerge from Washington in recent years. It would have given workers the option to buy lower-cost long-term care insurance through their workplace. If you’ve seen a nursing home bill lately, you know that decent care costs more than $70,000 a year. It’s estimated that 70 percent of Americans over 65 will need long-term care at some point. Right now, either families or the Medicaid program absorbs these exorbitant costs — and Medicaid funding has one of the biggest bulls eyes on it. So middle-class and lower-class families will pay more.

There is some good news in all of this. If you’re a hedge fund, private equity manager, bank, corporate treasurer or securities investor, you’ll be just fine. No one has suggested raising taxes on capital gains, trading profits, derivatives, dividends or “carried interest.” Apparently not everyone will be asked to sacrifice when the tax base is broadened.

Can Your Protect Your Savings in the Event of a US Debt Default?

Debt ceiling & dumber: No safe haven for your money?

By John F. Wasik (Reuters)

Washington is now acting out a scene from Tennessee Williams’ classic play Glass Menagerie. The ever-fragile players are about to shatter .

Yet this is not the time to turn a farce into a tragedy. A default on U.S. debt will make the 2008 debacle look like a Simpson’s episode. Interest rates will soar through the roof. Everything from mortgage rates to adjustable credit card financing will skyrocket. Payrolls may be imperiled along with Social Security and Medicare payments. Think economic crash and burn — in a big way.

If the credit rating of U.S. debt is downgraded from AAA, that will automatically signal to the global bond market that investors should demand higher yields for taking more risk. Standard & Poor’s has put the U.S. on its ominous “CreditWatch” status and will downgrade unless a debt deal is struck soon.

Money moves exponentially faster than politics these days. If bond managers get even a whiff of actual default, they will move their funds out of U.S. Treasuries at the speed of light. That tsunami may devalue anything measured in dollars, including U.S. stocks; corporations would then fire even more people and halt capital investment. Unemployment would hit Depression-era levels. Americans would wistfully recall the days of nine percent joblessness.

More importantly, a debt default will be a smack-down to the credibility of the U.S. as an issuer of the highest-quality bonds. It will also clobber the liquidity of anyone who holds U.S. paper, from Chinese banks to Europeans hoping to escape debt debacles in Greece, Ireland, Portugal, Spain and Italy. Trillions could flow out of Treasuries into countries perceived as fiscally sound.

Here’s PIMCO’s Bill Gross, the biggest bond fund manager by assets, writing in the Washington Post: “Global investment managers have global choices these days, and a solvent Germany or Canada is just a wire transfer away for trillions of potential investment dollars looking for a safer haven.”

Gross said several weeks ago that he sold U.S. Treasuries from his PIMCO portfolio. “The debt ceiling must be raised and not be held hostage by budget negotiations,” Gross concludes. “Don’t mess with the debt ceiling, Washington. Bond and currency vigilantes will make you pay.”

Both parties have now entered the “break it, you own it” phase of their bickering. Who do you pay first in the event of a default? The military? Air-traffic controllers? Who gets burned? Social Security recipients? National Park visitors?

How do you avoid getting walloped? If the White House and Republicans can’t agree on a plan to avoid default, it would be silly to retreat into gold or other precious metals. You can’t use bullion to buy food, medicine or pay utilities.

Worst-case scenario: To protect yourself against interest rates ballooning, you could short Treasury bonds. This is incredibly speculative — and risky.

One approach is to buy leveraged exchange-traded funds such as the ProShares Ultrashort 20+ US Treasury ETF. This fund promises a return 200 percent of the inverse performance of a 20-year U.S. Treasury-bond index. So if interest rates soar, you can make a lot of money, or just offset the losses in every other part of your portfolio.

Of course, this is a money-loser if politicos come to their senses and interest rates don’t climb dramatically. A lower-risk approach may be to hold onto a high-quality money-market fund that mostly holds corporate debt. Cash would be king — as long as it didn’t involve defaulted U.S. debt. In truth, though, no one really knows what will happen or what the safe havens will be.

There are other ways of defusing this mindless political kabuki: Take Social Security and Medicare off the table for now. Discuss them separately in a series of expert town hall forums over the next year. Besides, these programs should never have been held hostage in the perfunctory debt-ceiling passage. They are largely self-funded by payroll taxes and merit separate treatment.

The American people, who overwhelmingly support social insurance benefits, deserve an intelligent dialogue on whether all or part of these programs should be cut or privatized under the Republican template. When I talked to a packed room of fiscally conservative older Americans Wednesday night on whether they wanted to see Medicare or Social Security privatized, not one raised a hand.

Wiser heads may prevail, although it’s ironic that shorting Treasuries is not only an uber-cautionary strategy, but a portfolio position held by a key player in the debt talks — Rep. Eric Cantor (R-Va.), the House Majority Leader, at least in his 2010 financial disclosure statement.

Is Cantor merely trying to speculate on inflation returning, which countless pundits have been forecasting for years? Or maybe, since he’s at the center of this maelstrom, he’s cynically hedging his bets.

We’re not playing checkers here. The pieces can break in a disastrous way.

Check your insurance!

8 home issues your insurer doesn’t cover

By John F. Wasik (Reuters)

You won’t believe this, but my house was hit by lightning — twice.

I know this isn’t supposed to happen. Fortunately nobody was hurt and the house didn’t burn down. Yet I think a deity (maybe Thor or Zeus) was reminding me to check my insurance coverage and install lightning rods.

Checking your homeowner’s insurance is a matter of seeing 1) what they won’t cover and 2) your out-of-pocket expenses, based on your deductibles.

Since I carry a $1,000 deductible on my homeowner’s policy, which reduces my premium, I know anything under that threshold is on me.

It could have been worse. In the case of my dual lightning strikes, I only had to pay to replace (2) circuit boards from my garage-door opener, a sump pump and computer board in my stove. Those expenses totaled about $900. The garage-door opener repair service generously offered to send in a claim directly to my insurer, which was helpful, but it still wouldn’t exceed the threshold of my deductible.

I discovered in researching this subject that even if my lightning-related expenses had exceeded $1,000, my insurer may not have reimbursed me anyway since power-surge damages typically aren’t covered. I had bought a cheap surge protector to protect my garage door opener, which didn’t do much good against a million volts. (I noticed in the hardware store, though, that more expensive surge strips carried insurance in case any appliance got fried, so that was some reassurance).

Since I live in the Midwest, I’m most concerned with water and wind damage. In the winter, we get these gremlins called ice dams that back up on frozen gutters and leak into the house. Roof vents have also leaked in the past, which have caused extensive ceiling damage upstairs. Insurance covered that.

What gets tricky is that insurance rarely pays for water that accumulates from burst pipes, broken sump pumps or sewers. Tornadoes and hurricanes? Sure, but not minor floods and seepage.

Here are some other problem areas when it comes to homeowner’s insurance:

Roof damage
As I mentioned above, big storm damage is generally covered. If you’re hit by a hailstorm, then claim payment depends on the size of the hail and what it did to your roof and vehicles.

Termites and rodents
It’s amazing how much damage a critter can do, but insurance generally doesn’t cover pest destruction. Exterminators aren’t covered, either. You’ll need a trapper for skunks and other varmints.

Home office equipment
Most home policies don’t cover computers, copiers and fax machines, especially when it involves power surges. You may need a separate rider or business equipment policy. Surge protectors and uninterrupted power systems usually protect your key equipment.

Liability
What if someone is injured on your property and they sue you? Most policies have liability protection, but check on the limits. Generally $1 million is common, but you can always buy more coverage.

Flooding
As I mentioned above, this is generally not covered. If you live on a flood plain, buy low-cost government flood insurance separately.

Normal wear and tear
Don’t expect your insurer to pay to replace a 20-year-old roof that hasn’t been damaged by a storm, old siding or other items that just wear out.

Mold
Since this became a huge problem a few years ago, many insurers stopped covering this and added exemptions, except in rare cases. Check your policy “endorsements” to see if your insurer covers this. In insurance jargon, an endorsement or “rider” is a clause insurers add to your policy that says they will or won’t cover a certain kind of claim.

Earthquakes
Like flooding, this may require a special policy or coverage, depending upon where you live.

Keep in mind that, depending upon how much you want to spend, you can always buy more insurance. You can even get coverage to protect against identity theft. Generally, though, you can save the most amount of money by keeping deductibles high, which lowers premiums.

No matter what kind of policy you get, make sure you have inflation protection and replacement cost coverage. Even though the value of the contents of your home or apartment may have declined, the cost of replacing them hasn’t.