When you are saving for your retirement and use a 401k account, you are thinking long-term. The fact stocks in your portfolio might rise or fall is irrelevant so long as you both receive dividends and, over time, the stocks’ value rises more than inflation. If this applies to you, the value of your saving is secure and you have “made a profit”. But if you were spooked into selling every time an investment fell, you could be locking in losses and paying commission to your broker on top — not the most desirable outcomes.

As an example of the problem, let’s look at the solar power market. If you live in a slightly better than average home, you are probably paying about $6,000 per year in electricity charges. A home solar-power system costs about $90,000 except the federal government is so keen to promote the use of solar power there’s a 30% subsidy. So the cost of the installation is about $63,000. The system has a life expectancy of about twenty years so, if you pay off the cost over ten years, you get free electricity for not less than 10 years. That seems like a good deal. Except very few people want to pay now to save money later. In fact, the majority will be looking for a no-money-down deal and reduced payment even though, long-term, this is a worse deal.

This unwillingness to invest in the future is what causes your insurance rates to keep on rising. Let’s take just one issue as an example. The insurance industry loses billions a year through fraud. Instead of spending money to put people and systems in place to reduce the fraud, the bill is simply passed on to us as higher premiums. But suppose your state used some of the taxpayer dollars to create a special task force to investigate insurance fraud. This force liaises with all the insurance companies, i.e. the computer systems are partially integrated so that the claims adjusters can refer suspected cases for investigation. Why use taxpayers’ dollars? Because fraud is a serious crime and, if there are going to be successful prosecutions, a dedicated and specially trained force is the best approach. You are worried this may cause tax increases but ask yourself which is better: that you should pay a little more in tax now if this reduces the level of fraud in your state and means your next auto insurance quotes come in at significantly reduced levels?

Just think how much of a deterrent more effective investigations would be. The first people tried and convicted are given media coverage as they go to jail. It only takes a reduction in fraud by a few hundred million, and we are moving towards a better country with less dishonesty and really cheap car insurance. Unfortunately, the politicians have no stomach for this type of policy because it does not deliver benefits to fit into the two-year electoral cycle. To keep their voters happy, they need results today so they will be re-elected tomorrow. If all the voters see is higher spending and only slightly reduced premium rates in two years, they may vote against the big-spending governments and demand the termination of all the special task forces.