10 Years Ago - Connecting Quarterly: 4th Quarter 2016

Dear Friends

Ten years ago this month, on a Sunday morning in my quiet neighborhood, I had the misfortune of being in the wrong place at the wrong time. My wife and I were out on our weekly cycling ride when a teenage driver inexplicably ran a stop sign at about 25 mph and broadsided me. As my helmet cracked the car’s windshield and I flipped over its opposite side, my wife had all sorts of frightening visions of what she might see when I came into view. Fortunately, I was conscious, but had fractured two vertebrae and later learned I had done significant damage to the median nerve in my right arm.

My rehabilitation after the accident was one of the most physically and emotionally challenging periods of my life. For three months, I couldn’t roll out of bed until my wife had strapped me into a stiff plastic “clamshell” brace that went from my hips up to my neck, designed to keep my spine perfectly straight while it healed. The nerve damage in my arm meant my brain and my right thumb had become disconnected, making it impossible for me to bend my thumb. Everyday activities like holding a pen, typing on a keyboard and opening a jar with my dominant hand were no longer possible.

While I expected the physical aspects of my recovery to be tedious, I had no idea how challenging it would be emotionally. Nerve damage rarely has a clear prognosis. My neurologist told me it might heal, it might not, and there wasn’t a clear way to tell in advance whether I’d regain use of my thumb. For the next two years, I saw my physical therapist twice week. During those sessions, our most memorable activity was sitting across the table from each other and grasping hands like arm wrestlers, but with my thumb stuck in its constant “thumbs up” position. For 10 minutes, she would implore me to bend it, but despite the massive effort my brain would exert, week after week, my thumb wouldn’t move. Then, one day in therapy session 200-something, it moved. It didn’t bend, or even wiggle. It just quivered ever so slightly. But I had made it quiver. Outside of my wedding day and the day my son was born, it was one of the happiest moments of my life, because I’d been told for two years that the slightest movement would be a sign the nerve was regenerating and there was now a high likelihood I would regain the use of my thumb.

I would have never expected that ordeal to teach me lessons that would carry over to the world of personal finance, but three have stuck with me over the past 10 years:

  1. Long-term results are really just a function of repeated short-term actions. There is no such thing as achieving a result “over the long term”. Regaining the use of my thumb wasn’t a one-day miracle; it was a function of day-by-day effort and healing. Similarly, what happens to our wealth over the long-term is really just the result of a series of reoccurring short-term decisions. Want to have more money in 10 years? Start saving a little more every month. Want to give yourself a better chance of capturing the long-term returns of the stock market? Stop looking at your portfolio every day and tempting yourself to chase yesterday’s performance. Thinking about transferring wealth to your kids or grandkids? Make your tax-free annual exclusion gifts like clockwork on January 1 each year. Each individual action might seem inconsequential on its own, but the cumulative effect of “the little things” adds up big over time.
  2. Having a support network is critical. We all need someone on our side to help us through life’s tough times. For three months after my accident, my wife took care of me and did everything around our home, while also spending eight hours a day treating kids in her job as a speech therapist. My physical therapist spent hours counseling me on the pros and cons of the surgical options I would have had to consider if the nerves in my arm didn’t regenerate. With your wealth, you need knowledgeable, objective, empathetic advisors to help guide you when your financial world threatens to go “off track”. Maybe you’re nervous about the stock market. Maybe you’re wondering if you have too much or too little life insurance. Maybe worrying about how your wealth will affect your children when they eventually inherit it keeps you awake at night. Having someone who listens to your concerns and helps to address them, including advising you to “do nothing” when that’s the best answer, can be extremely valuable.
  3. The impact we have on people is our most important legacy. I’ll be honest: Despite the efforts of my support network, there were times after my accident when I felt frustrated, fearful and desperate about whether I’d ever recover physically. Looking back at how I felt and acted during those times doesn’t make me feel very good today, but what does give me some happiness is how I tried to treat others during that time. Nine weeks after my accident, my mother turned 70 years old. The joy on her face when I organized a surprise birthday party and managed to get my “clamshell” wrapped body on a plane to travel 2,000 miles to be part of it was incredible. It made me realize how powerful our impact on others can be. The same is true about our wealth. It’s easy to believe that the purpose of wealth is to acquire things. I like nice things as much as the next person, but I’d argue wealth is more powerful when it is used to positively impact people and causes that are important to us. Those people and things might be as familiar as our children or our local place of worship, or they might be as distant as a beneficiary of a faraway charity that we choose to support. Either way, I think how we choose to use wealth to impact others is a big component of our happiness.

As always, we welcome your questions and comments.

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Chuck Carroll, CFA, CAI
Chief Investment Office
TFO Phoenix, Inc