My Approach Toward Personal Finance (or: How I Learned to Stop Worrying and Grow Money)

As of this writing, 2015 has not been a great year for the United States financial markets.  As of
today, the S&P 500 index (possibly the truest representation of the US stock market, seeing as it's the broadest index) is down 6.69% for the year.  To contrast this with previous performance of this index since 2009:

• 2009: Up 23.75%
• 2010: Up 13.14%
• 2011: Down, but only 0.87%
• 2012: Up 13.91%
• 2013: Up 30.5%
• 2014: Up 12.93%

With the exception of 2011, the last six years have been like a shotgun blast, and everyone who had the cujones to buy and hold through an awful 2008 has made a ton of money since then.  For every dollar you invested on January 1, 2009, you had $2.60 on December 31, 2014 (not adjusted for inflation).

Over the last decade, I've had more than a passing interest in the field of personal finance, since I believe it informs us a great deal about the human condition.  Conservative or liberal, Democrat or Republican, we're all capitalists and we all work to make money, hate it or love it, ostensibly to improve our lives.  Money is inherently neither good nor evil; it just is, because of rules we've agreed upon as a society.  It's truly fascinating, especially when you consider how even the world's greatest economists can make only marginal progress toward understanding how money "works".

Anyway, I wanted to devote some space here to discuss not only my approach toward personal finance, but also some of the best teachings I've ever had regarding the topic.  I'll try in this article to keep things interesting and not go too deeply into the weeds.  I will also try to show you with concrete examples how I calculate stuff (this may be in polar opposition to the previous statement), because I've developed a system over the past several years that I feel works very well - at least for me, though I admit I am the type of guy who is happiest inside a spreadsheet.  Let's get started...

Belief #1: Invest, and Ye Shall Be Saved

When I graduated from Rutgers in 2006 and got my first job, my father insisted I start contributing to my employer's 401(k) plan as soon as possible.  As I've mentioned before, I lasted at that job for about eleven months before leaving for graduate school.  I invested about $3,000 over those eleven months, rolled it into a self-directed IRA after I quit, and lost almost half of it in the Great Recession.  (I made a stupid investment - I failed to diversify, a mistake I routinely try not to make again and invest dozens of hours each year in order to avoid in the future.)  Since then, though, I've turned that three grand into over four grand, just through compound interest (without saving a single additional dime into that account).

In fact, in thirty years (when I'll be 61 years old), that measly three grand will have grown to over $146,000, not counting inflation and assuming the S&P 500 index continues to grow over the next thirty years the same way it's grown over the last hundred-plus years*. (*NOTE: This may not happen, but it likely will.)

One of my favorite tools on the entire internet is MoneyChimp's Compound Interest Calculator.  It's simple, but elegant.  You input the amount you've already saved; how much you plan to save each year in the future; input an interest rate and a number of years, and that's it.  The calculator spits out how much money (in present-day dollars) you'll have at a certain point in the future.

You can play around with the above calculator as much as you'd like, but over many instances of using it, I've learned the following:

• Interest rate matters a ton.  If you assume 7% compound interest over a thirty-year period (a safe, conservative assumption), you'll get about 20% the output as if you assume a 12% interest rate.  Which interest rate is more accurate?  No one knows for sure, but my favorite personal finance article ever claims that historically, over a thirty-year period, the S&P 500 index has never returned less than 12% annualized.  More often than not, I assume 7% because I'm a pessimist, but 10% or even 12% is probably more accurate. 

• Time matters just as much.  Realistically, most people I know will have to save at least one million dollars before they can retire.  Assuming you draw down 4% of the total in retirement each year, having a cool million saved means you can live on $40,000 each year (tight, but maybe doable if you make some adjustments).  That 7% (or 12%, or whatever) interest rate really works its magic over medium-to-long periods of time.  That's the power of compound interest; it, y'know, compounds.

• Continuously investing matters, but not as much as having already invested.  It's pretty clear, if you didn't know this already, that continuously investing a set percentage of your paycheck matters a lot toward building wealth.  You get to "dollar-cost average", which essentially means you invest the same amount whether the market's up or down at a given time.  Your dollars are more powerful when the market is down, but since you've set it and forgotten it, it only matters in the long run.  As an exercise, though, hop on the Compound Interest Calculator and assume you've already invested $200,000.  Set your interest rate to 7%.  If you set your annual addition to twenty grand, you'll have $3.7 million dollars after 30 years.  If you invest thirty grand instead, you'll have $4.7 million; more, but not a ton more than $3.7 million, in my opinion.  What matters most is having the two hundred grand already invested - if you only had, say, twenty grand in the stock market right now, you'd have to invest $45,000 each year in order to hit that same $4.7 million dollar mark in thirty years.  Since no one I know can afford to save $45,000 per year, it makes sense to save a little bit each year, starting from an early age.

The point I'm trying to make here is, I've made a number of important decisions in my life, most of them good ones (I think).  Perhaps the most powerful of them is to save early and often.  I'm not sharing specifics in this blog post (with good reason), but if anyone's ever looked at me and thought that I have my shit together financially, it's because I saved early and often.  Even when it would have looked better to spend.

Belief #2: Track EVERYTHING.

I keep tons of spreadsheets, but the two most germane to this article are (a) my monthly budget spreadsheet and (b) my net worth tracking spreadsheet.  I'll discuss both of these in some detail, below.

I update my monthly budget spreadsheet every time a significant life event happens (e.g, a change in income, a change in employment status, a change in family status).  What it contains changes each time I update it, but the core worksheet is always the same.  Down the left-hand side, our household's monthly expenses are listed, row by row.  My wife and I have separate columns, beginning with our gross (pre-tax) monthly income and ending with our net (post-tax) monthly income.  After that, we deduct each expense from that amount (depending on whose responsibility it is to pay that bill).  At the bottom of the spreadsheet is the amount of money we have left over each month after saving and  paying our bills (a very fortunate thing for us).

Below is an example of what I'm talking about, with the details completely blacked out:

The devil is in the details: your spreadsheet is only as honest as you are, and if you routinely blow your stated budget on "Credit Cards" or "Dining Out," you might as well wipe your behind with it.  There are several items on this list I've had to revise (sadly, mostly upward) over the years to reflect reality.  But in the long run, it's turned into a highly useful tool which has allowed me to quantify our ability to output more money as a household than we've input, each and every month.

My net worth spreadsheet is password-protected, and if my wife outlives me, it's going to be a pain in the ass for her to open it.  I update it twice per year; once in May (which happens to be the month we closed on our house in 2011; this was the single most impactful financial decision of our lives to date, so it makes sense to track our wealth each May) and once in December (as my income is bonus-dependent and I get said bonus in December each year).

I update this spreadsheet relatively infrequently, because a person can drive themselves nuts (and make bad decisions as a result) worrying about month-to-month fluctuations in net worth which end up signifying absolutely nothing.  While there are personal finance sites (such as Consumerism Commentary) out there which focus on regular people updating their net worth monthly, this feels less like reasonable personal finance and more like lifestyle porn to me.  If I have my specific details taken care of with my monthly budget spreadsheet, the net worth spreadsheet is for the big picture stuff and as a result, it does not need to be updated any more than twice per year.

The rows of this spreadsheet represent our core assets (e.g., investment accounts, home equity) and our debts (e.g., mortgages, car loans, student loans).  Each May and each December, I update the spreadsheet with the present values of each asset and each debt.  The formulas I've created calculate our net worth as the simple subtraction of our debts from our assets.  Below is an example of this, again with the details completely blacked out:

The most important column in the spreadsheet is the "YOY (delta)" column.  This calculates the year-over-year appreciation (or depreciation) of each row in the spreadsheet.  I mentioned before this is a big picture spreadsheet, and with the information this column provides, I make big-picture decisions about whether our household's finances are heading in the right direction.  I put a ton of faith in the "YOY" column.

The most important row in the spreadsheet is the "Net Worth" row (of course).  It's nice to see our net worth grow each year (though it frankly may not in 2015), and quantifying the extent of the growth builds confidence that what we've built so far can continue to grow with time.

Belief #3a: Buy and Hold
Belief #3b: Don't Trust Most "Experts"

I put these side by side because they together inform my beliefs regarding long term investing.  The first statement is my strategy for selecting investments, and the second is my strategy regarding taking advice about these investments.  (I realize if you're reading this column you may be taking my advice - do so with a grain of salt, as I am not a financial professional, just a regular guy making it through this mortal coil as effortlessly as I can.)

The second statement might be the more controversial of the two, so I'll address it first.  There are undoubtedly financial advisers out there who believe the truest way to grow their business is by serving in the best (e.g., fiduciary) interests of their clients, there are many more who believe the truest way to grow their business is through higher commissions charged to their clients.  In general, I don't trust many people in the financial field because through my work, I've seen many of them don't operate in the best interest of their clients.  I can afford to make this claim because of Belief #3a, which allows me to state virtually no one knows how to play the stock market in the long term, so the best you can hope for is to ride the stock market.

This, too, is a somewhat controversial claim.  Each year, there are mutual fund managers whose funds beat the market.  There are even some who may beat it reliably for a few years.  My argument is the percentage of mutual fund managers who routinely beat the market is the same as the percentage of online poker players who routinely make money.  (It's a low percentage, in both instances, though you wouldn't believe it if you heard other people's boasts.)  As a result, I invest my money passively - meaning I don't count on human beings to make informed stock picks, instead choosing to invest in entire markets and indices (such as S&P 500 index funds).

This doesn't mean I don't pick stocks occasionally.  I do, but it treat it the same way I treat my online poker habit - as gambling money.  I put a very small percentage of my portfolio towards it.  If I make money, great.  If I don't, no big deal.  It's just for leisure and entertainment.

But when it comes to saving for retirement - something I hope to do at some point in my fifties - the stakes are as serious as they can get.  My belief is that despite whatever amount of intelligence I may have, I am not smart enough to pick stocks and I am not smart enough to pick stock managers.  I can only control the fees I am charged, so I seek to keep these as low as possible.  I do it by investing in index funds, but there are other methods that work too. You can read one of the books I reference below, if you're interested more in this.

***

There are other topics I could write about here as well (such as diversification, which may alone be more important than anything else described above), but I'd be stepping way out of my depth in doing so.  I'm telling my personal story here, and of course, your mileage may vary.

If you're interested in learning more about this (to me) highly interesting topic, here are some books which have helped me over the last ten years:

• The Wall Street Self-Defense Manual, by Henry Blodget: The first serious personal finance book I ever read, written in newbie-friendly terms (and only 98 cents!).
• A Random Walk Down Wall Street, by Burton Malkiel: The go-to guide for the rationale behind passive investing.  A bit more technical, but still a good read.  I re-read it, usually on the beach, every couple of years.
• The Four Pillars of Investing: Lessons for Building a Winning Portfolio, by William J. Bernstein: The most technical book I've ever read on the topic (written by a neurologist and investor), but worth the effort.  When I mentioned diversification above, this is the book I refer to when rebalancing my portfolio each year.

And no, I don't think it's essential to give as much of a shit as I do about this in order to be ultimately successful.  I just think you need to care enough to (a) invest some money and (b) not get screwed over by nefarious individuals who claim to serve your best interests, but do not.  You'd take care not to get pick-pocketed when visiting a foreign city; you'd be well-served to do so when thinking about growing your money.

I Just Wasn't Made For These Times: My Disdain For Kid "Stuff" on Social Media

My notes regarding this blog post.

My daughter, thankfully healthy as anything, with ten fingers, ten toes and a smile that melts me, turns a month old on the day I write this sentence.  Today, I decided to scroll up and down my Facebook news feed, and am pretty disheartened by what I see - posts of substance pretty much ignored, immediately next to pictures of creatures that contribute nothing besides some sort of "cuteness" I don't really understand, which are themselves adored. 

I admit I pretty much do not like children.  I like my own kid, sure, but (with a few exceptions) I don't like other people's kids. That being said, I really have no way of understanding why other people like other people's kids so much, especially on social media.  In this post, I'd like to dive a bit deeper into my attitudes regarding this subject.  I do so well aware that my opinions may be somewhat unpopular and/or subversive.  To this, I say: tough shit.

I suppose I should start with a little background, explaining how I handle pictures of my own daughter on social media.  Thankfully, my wife and I are pretty much of one mind on this.  My opinion is baby pictures should be like sexual threesomes: pretty uncommon but when they happen, they're always conducted with trustworthy and tested people.  To that end, we created a Facebook group where people can ask to join, we can accept them into the group, and everyone is happy.  The people in the group can see as many pictures of our daughter as their heart desires, and everyone who doesn't want to join the group can have their News Feed filled with other material.

With a heavy heart and while grinding my teeth to nubs, I'll admit I halfway like it when people "like" pictures we post of my daughter.  It makes me feel important and that I've created something of value to other people.  But in reality, my daughter is at least two decades away from the possibility of creating anything of real substance and value to the world, and though it pains me to say this, objectively speaking she very well may never create anything of real substance and value to the world (though I truly hope she does).  Neither will your kid, most likely, or the kid next door.  Most of us are like that kid from the Super Bowl commercial years ago - desperate to claw our way up to middle management. 

What I'd prefer, regardless of the grim implications of the above paragraph, is for my daughter to grow up with a grounded and well-reasoned sense of individuality, personality, values and an appropriate level of self-importance.  And, frankly, I'm scared about her generation and what they might grow up to become, as it pertains to the impacts of the behaviors their parents use on social media on the healthy growth of these attributes.  Allow me to explain.  I was a Facebook early adopter, starting to use the platform as a college student in 2003 at the age of 19.  And predictably, I was a member of the first generation to seriously get themselves into trouble using social media.  Plenty of my female classmates posted ridiculously racy pictures of themselves on the platform back in the day - trust me, I (and my male cohorts from the Rutgers University class of 2006) remember this.  Some of these folks will eventually run for public office, and get in trouble for it - we've already seen this happen.  It'll get way worse in the years ahead.

The above is sort of an extreme example, but on a day-to-day basis, I feel what most parents do (specifically, posting unfiltered and frequent kid pictures to their social media presences) is a well-intentioned mistake.  It's well-intentioned because it comes from a place of love and value - we love our kid so much, and clearly other people "like" the pictures we share, so why not share the pictures we take of our kid to other people?  But it's a mistake because it presumes something which is fundamentally untrue; specifically, that everyone who views these photos wants to see those photos.  Our children aren't as popular as they seem when we post pictures of them online, but the impression they ARE popular influences our other parenting decisions in ways we might not understand or even be aware of, and that's bad news bears for the future.  Think about the popular kids from your middle school days and how fucked up they likely grew up to become as adults.  That's what we very well might be turning lots of kids into - the gross manifestation of our adultified dreams of being the popular kids in middle school.

I've purposefully avoided the word "consent" so far, but I'd like to bring it up now as another pitfall of posting pictures of your children on social media.  We all know some adults who've elected to remove their social media presences entirely.  More rare, but still out there, are the adults who never signed up for social media in the first place.  We have no way of predicting whether the incidence of social media usage will continue to stay as high as it is at present - it could be the case, twenty years from now, young people will prefer to communicate with each other via Virtual Reality goggles, engineered telepathy, or not at all.  I'm being a bit absurdist here, but it's true that when you (or I) post a picture of our child to social media, we make the decision for them to put them out there, and they have absolutely no way of consenting to that decision.  They may very well elect to have no social media presence as an adult, and - to me, at least - it's a big deal that we honor that potential choice.

"This is all a straw man - much ado about nothing - you're making a mountain out of a molehill - it's no big deal," some may react to the tone of this article.  I agree I take social media more seriously than I should - I also take TV commercials (and just about everything else I somewhat care about) more seriously than I should.  I do this because my life philosophy, which has taken years of deep thought to flesh out, is everything we take the time to do in our lives has some importance, whether we consciously see it or not, and even if it outwardly seems like we're wasting time doing it.  I'm also an idealist with impossibly high standards, and I feel like in an ideal world, we'd take the time to preferentially "like" articles of substance (say, articles about new scientific or technological findings) vs. some post-fetus with crust on their face.  (Maybe I just need new/different Facebook friends, but I look down my list and see a ton of highly educated people, so I dunno...)

***

I've talked above about kid pictures specifically, but let's expand the discussion to include posting kid-related status updates, in general.  I do this sometimes, but before I do, I scroll down to make sure (at least) the previous two posts had nothing to do with my daughter.  This is because the last thing I want to seem to be to others is "one of those people" whose lives entirely revolve around their kid.  (Even if it's partway true, when you have the sundry demands which come with a newborn.)

I value my busy, non-kid-related adult life - I go to work and there I work creatively and productively, I hang with friends, I go to dinner with my wife weekly, and I have hobbies that have nothing to do with my child.  Forgive my judgment here, but I'm a bit scared of parents who don't live that way.  It makes me feel like they might be a bit lacking in the individual substance department themselves, like they became parents to fill some void in their personality that I'm fortunate enough not to have.

To an extent, I have fewer concerns about consent when you're posting some words about your kid than when you're posting a picture.  I feel like people are more protective of their pictures than they are of stories someone else tells about themselves.  Also, there's a relationship between parent and child that comes through in text better than it comes through in a picture, and there's nothing inherently wrong with a person sharing their thoughts or observations about parenthood online - especially if those thoughts or observations are funny.

But it's still a post about someone else who isn't you, and especially when the child gets old enough to conceivably have their own social media presence, it feels a little awkward and wrong to me.  I reserve the right to change my mind on this in the future, but assuming she grows up well-adjusted, I'm okay with my daughter having her own Virtual Reality-based, engineered telepathy system online presence when she's about the age of a freshman in high school.  From that point on, all Daddy is going to post about is his beer brewing, even though he'll remain very proud of you, sweetheart.  From that point on, you're in control of how you present yourself - to your peers and to adults - on social media.

With that approach, sure, she'll make mistakes.  But she'll also learn the same way my generation learned (from using AOL from the age of 13 on and from making mistakes in chat rooms - believe me, I made lots of mistakes in AOL chat rooms in the mid-to-late '90s) to cultivate a smart, sensible online presence.  That's probably the ideal, not only here but also in every parenting decision, right?  How do we get from a blank slate to making smart and sensible individual choices?

The online world is a scary place and I'm surprised at the cavalier attitude my (mostly well-educated, mostly intelligent and mostly high-achieving) social network takes with respect to their kids' online presence.  I'm not sure my opinions will ever jibe with the mainstream on this, but I felt like my thoughts had also never been written thoroughly regarding this topic.  Hopefully others can read this and maybe it'll provide some food for thought, if not getting people to agree with me, at least seeing where I'm coming from.

On Becoming a Dad, Somewhat, Kinda Soon

With the birth of my daughter likely just a few weeks away, it's difficult to parse and make sense of

what's on my mind.  It's a combination of nervousness, excitement, fear of not being ready, confusion, and (to be honest) a bit of mourning for my soon-to-be-gone, childless life.  I thought I might write a few paragraphs tonight on this, just to reflect and keep something in writing for the future - maybe one day I'll find this silly, who knows?

***

Those who know me know I vacillated for years on whether to pursue parenthood in the first place.  I have always envied (and perhaps will envy, moving forward) the childless couple, free to be the generous uncle or aunt, able to spend time with friends’ and relatives’ children, then go home and have some peace and quiet at the end of the day.  I also saw the financial benefit to never having children.  To be brutally honest, what we’re giving up by having this child is the near certainty of (a) retirement around age fifty, plus (b) having the ability to easily and less nervously travel the world afterward, or hop from cruise ship to cruise ship if we wanted.  For what in the world would we give up such a rare privilege?

A great deal, actually.  In my humble opinion, people should without a doubt abstain from having children if that’s their true feeling, but ultimately I wanted the ability to write every possible chapter in my life (including the one involving saliva, loose shit, and nasal crust, mixed with selflessness, adoration and unconditional love).  In the end, I knew I’d be selling myself and my full potential as a human being short if I didn’t hold my nose (literally) and take the leap into the deep end of uncertainty we’ll call impending parenthood.  

It's unbelievable and frankly weird to think that in just a few weeks, I'll have a creature I'll need to (jointly, with my wife) nurture, change, help teach, and generally raise.  For all my past achievements, I have never really felt I was qualified for this thing, parenthood.  Some people just fall into it naturally, it looks like from the outside, but I can't do that.  After all, my achievements so far have been intellectual, financial, logical.  They haven't been emotional, and emotional strength is (ahem) not my strength.  

I always assumed parenthood was designed for someone older, someone more balanced, somehow more equipped to handle the randomness and chaos which must certainly accompany having a helpless, small child.  In my mind, I'm still about 23 years old, which is great when I need to go for a run, drive somewhere quickly, or be creative at work.  It's terrible, though, when it comes to facing the reality that I'm no longer 23 years old, and I haven't been 23 for quite a while, in fact.

***

Uncertainty is not my thing.  I keep spreadsheets on minutia, I follow bloggers who write about Bayesian statistical applications, and I work in an research field because I seek to minimize uncertainty in every way possible.  As an extreme example, if I could know the precise moment I am supposed to die, I’d want to know it.  But I can’t know it – I can only know that I one day will die, and embracing my own mortality is a key aspect in embracing parenthood.  Some little part of me could, perhaps should, live on, long after I am gone.  Maybe that's a little selfish, but it's ultimately a part of the calculus that led me to decide to become a parent in the first place.  I admit this without any shame.

That said, one of the things that freaks me out is that there is virtually nothing I (or any parent) can do to keep our future child from the (albeit unlikely) outcomes of having autism or schizophrenia, or from being a serial killer or a sociopath.  This is the unfortunate, perhaps less talked-about side of becoming a parent – perhaps only something really negative people ever think about, but that’s sort of what I am.  But it really does happen to people.

To that point, worry is my thing.  I worry about everything, including highly unlikely outcomes such as the ones mentioned in the previous paragraph.  It helps to remember that for someone who tends toward nervousness like me, it’s all too easy to spend your life hopping from one anxiety point to the next, and then one day your kid is twelve and a half years old and you’ve spent the last thirteen years worrying about nothing of substance.  It’s more difficult, but ultimately more rewarding, to just jump into the uncertainty and allow oneself to accept whatever happens next.

***

So I suppose I'll just trudge through the next few weeks, until the "best day of my life" happens.  But the odd thing about the best day of your life being something like four weeks away is it leads someone toward some oddball type of emotional performance anxiety - what if it's actually NOT the best day of my life?  What if, for some reason, my wedding day, or the day I moved into my house, or the day of my college graduation, trumps it?

At this point, and to conclude mercifully, I'm looking at what I've written above and it looks half like the writing of a very anxious individual and half like the scribblings of a madman.  I'm still going to publish it, though, because (a) YOLO, and (b) it might be worthwhile for someone in a similar position to read this and realize they're not nuts, they're only temporarily nuts.  Perhaps some of you who've been in this position before empathize.  But still, these are just my thoughts.

Ripping Apart Liberty Mutual's TV Ad Campaign

I haven't posted here in a very long time, not because I have stopped thinking of important things to say, but mainly because I'm not sure 8,000 words on how I'm terrified of becoming a dad in six weeks (probably my most common thought these days) would be an interesting or insightful read for my audience.  However, I was chatting with a friend recently about how I'd essentially stopped blogging, and he mentioned that it'd be great for me to try to "loosen up" the writing chops a bit with a post on terrible TV commercials.  So, I've decided to take his advice.  My apologies if this comes out terrible; I'll just blame it on rust. ::loosens up throwing shoulder::

I occasionally post about TV commercials and postulate on the reasons (typically corporate reasons that I have no business postulating about since I don't work for these companies, but hey, whatever) behind the awful ones.  Usually it's an indictment of corporate America as a whole and more specifically its politicized misread of the target demographic, but I'm going to do something different here today and focus entirely on advertisements from one company, since I think there's a common theme running throughout the ads that might be useful to talk about.

***

Liberty Mutual Insurance is the United States' third-largest property and casualty insurance carrier (behind Geico, which is owned by the massive conglomerate Berkshire Hathaway, and AIG), and was the 76th largest company in the US in 2013, per the Fortune 500 list.  They're a massive company, with 50,000 global employees, and as a result they can spend a ton of money on advertising.

We all know Geico's reputation as an innovative (if occasionally overbearing) advertiser.  Their commercials are some of the best-known ads in recent memory, and their "hits" often carry over into the popular culture mainstream.  Just ask my wife, who in 2013 won several Halloween costume contests at her company by dressing as the Geico "Hump Day" camel.  What the hell, just click the link below and remind yourself of the latent awesomeness of this ad:

This ad garnered (as of today's writing) 1,878 likes on YouTube, vs. 52 dislikes.  (Who the hell are those 52 people and can they please leave the country?)  The advertisement is memorable for all the right reasons - it touches upon an emotional string that most everyone who has ever worked in an office (or seen the movie "Office Space") can understand, it's whimsical, and it's funny as hell to top.  Does it remind people of auto insurance?  Not directly, but I bet if you asked most people about the "Hump Day" camel, they'd tell you it's a Geico ad.

Liberty Mutual's most recent ad campaign goes "all-in" on being all about auto insurance.  They use different actors in each, but the backdrop is always the same - a sterile, urban backdrop, with the Statue of Liberty in the background (perhaps to remind the viewer of the company's logo).  The actor shares a personal story about having auto insurance, either through Liberty Mutual or through a competitor, and the commercial concludes with some music and a voice over, with a brand logo screen.  It's standard commercial fare from a previous decade, and I'm personally surprised at how subdued it all is.

Where I think people get pissed off by this campaign is with the actors and their personal stories.  Check this one out, for instance:

Perhaps before designing this ad, Liberty Mutual's creative team should have thought a bit about what people who own (or lease) cars in the United States tend to already know about their cars.  This may be a bit of an elitist presumption on my end, but I think it's pretty common knowledge that a new car depreciates the instant you drive it off the lot.  Maybe other people don't know this - maybe I'm wrong - but I think I'm correct about this.  The average new car in the United States these days is owned for eleven years, and no day of that eleven-year experience is more expensive than the day you drive it off the lot.

Keep in mind this isn't a commercial for Liberty Mutual's standard auto insurance, per se.  It's a commercial for a specific rider called "New Car Replacement", which (if you read the fine print) is additional coverage (that you have to pay extra for) which only applies to brand-new cars under a year old and under 15,000 miles.  I'll give Liberty Mutual a few extra credit points for designing a commercial for a specialty rider vs. a standard auto insurance policy, but other people - who, unlike me, do not work as market researchers specializing in insurance - have absolutely no chance of getting the distinction.

***

Unfortunately, the guy above might be the least annoying actor/story combination in Liberty Mutual's most recent ad campaign.  Check out this lady:

The advertisement above is well-intentioned, and as someone who moderates focus groups, I can see how it made it through focus groups without any obvious red flags.  The story is earnest and emotional, and if you get people who are already thinking about insurance in a conference room together, they'll say something collectively like "Sure!  That makes sense to us!"

Unfortunately, people sitting at home on the couch eating potato chips are going to focus only on the superficial (the annoying and poorly executed "You freak out!" line, for instance, or the idea that the person who taps the station wagon - and is therefore at fault - being somehow the "victim" of the evil insurance company) aspects of the commercial, instead of what it's trying to sell - again, a type of additional optional coverage called "Accident Forgiveness" which is part of an overall insurance policy.

The ad actually raises a valid point - auto insurance companies do have an annoying habit of raising rates on people who've had an accident (often regardless of fault in the incident) and "Accident Forgiveness" might be an important value-add that could drive people to Liberty Mutual's product.  But ultimately, the executive above is too confusing and too annoying to get the average consumer to even think about switching to Liberty Mutual.

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Here's the worst of the bunch.  I'll present it without context, below:

I hesitate to look at YouTube comments, because I am not a masochistic asshole who likes to punch himself in the head (most of the time).  But in this case, it was actually illustrative to look at a few of the comments for this video:

• A message to Liberty Mutual: Whoever you hired to create these ads has done you a disservice. Your audience understands that insurance companies are businesses, not charities. The fact that your rates go up after an accident isn't a penalty; the company is recouping its losses. 
• Whoever is their PR agency, they need to be fired...really? Brad? General, Geico, Progressive are all creative...but this is just stupid.
• This girl and this commercial are challenged!  The instant it comes on I have to mute or end up throwing something at the TV.
• This actress really annoys me. She tries way too hard to feign emotion. Someone needs to tell her it's just a commercial for a racket industry, not a Broadway play.

And here's my favorite comment:

• These videos are insulting and annoying.  I made a special trip to YouTube just to let this company know how aggravating these ads are.  These ads show fictitious consumers who rail against insurance companies. Here's the kicker: the sponsor of the ad is an insurance company itself.  They obviously think the average consumer is brainless not to see right through this soap opera. 

That's really the issue here, isn't it?  I know lots of people within the insurance industry who rail against the Geicos of the world for creating advertisements that have nothing to do with insurance.  These folks need to take a second to actually think about perceptions of the insurance industry amongst mainstream Americans (hint: perceptions are awful).  Perhaps the only way to get people to think positively about your brand if you are an insurance company is to use smoke and mirrors (or camels, or Flo, or whatever) instead of focusing people on more "obvious" factors such as the products your company offers or your company's value proposition.

The product being pitched in the above ad is called "Better Car Replacement."  (Though I've seen this ad on TV hundreds of times, I actually had to write this blog post and freeze the video toward the end in order to remember this, so great job, Liberty Mutual!)  For all I know, "Better Car Replacement" is an excellent value for consumers - insurance companies have teams of actuaries who, if you ask them, will tell you their job is to find ways to maximize profits for the organization while offering a great deal to customers.  People are very fickle about auto insurance, and will change carriers at the drop of a hat - so the smart companies actually dedicate tons of resources toward trying to keep their customers loyal.  But all of this possible helpfulness is just completely lost in the horrid execution of the TV commercial.

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The other item I wanted to bring up regarding this ad campaign is demographic in nature.  I do not think it is a coincidence that the actors in the above ads are a blue-collar dude and two young women.  Auto insurance companies often segment their customers into groups based on demographics, and it's pretty clear to me that Liberty Mutual was attempting to increase market share with these ads among "git 'er done" type guys and female Millennials.  It could because, when these types of people select an auto insurance carrier, they are less likely to switch companies no matter what happens - but who knows, I am only speculating here.

Will it succeed?  I actually plan to check out Liberty Mutual's earnings statements in the quarters ahead, because I'm curious to see if this ad campaign did anything to drive increased sales.  (I would doubt seriously if it did, but I'm no fantastic businessman, so I could be wrong about this.) Time will tell...