Beware of Averages
They can lead to unexpected surprises and circumstances
Happy Wednesday and good morning!
Today is National Help a Horse Day, and while Elizabeth and I love animals (especially our Winnie), I gotta say that I’m a little less fond of horses than I used to be.
Elizabeth has ridden horses pretty much her entire life starting when she was very young.
And as you might guess, most of her riding experiences were fun and enjoyable but not particularly memorable.
In other words, she settled into a pretty average horse-riding experience over many, many years.
Until 2011.
Late that year, she and some friends went on a trip to a ranch in Colorado. Sorta like City Slickers where they actually did a full-day cattle drive on the last day of their trip.
And not long after riding out on the last day cattle drive, they were crossing a creek.
Elizabeth was riding the same horse she’d been riding all week at the ranch with no issue.
While crossing the creek, her horse got a hoof wedged between a couple of rocks, panicked, bucked, and Elizabeth goes flying.
While I’m thankful that it wasn’t any worse, when she landed her foot hit a rock.
She said it hurt pretty bad, but being the trooper she is, she literally got “back in the saddle” and rode the rest of the day.
That evening, she went to a local hospital to find out she’d broken a couple of bones in her foot.
She flew back home the next day with a walking boot on her foot.
And a few weeks later, she was riding again.
Then in April, 2012, - just a few months after the Colorado incident - she was riding at Chastain Park in Atlanta with the same friends she’d gone to the ranch with out west.
She was on a horse she’s ridden dozens and dozens of times and felt very comfortable with.
But she wound up having anything but an average riding experience that day.
I’m at home doing some yardwork when I get a phone call from her friend, Pam, who said, “I’ve broken your wife again.”
Here’s a pic of what happened as Pam was videoing Elizabeth when it happened:
Yep, that’s my wife going airborn over the horse’s head.
She was cantering around the outside of the ring when another horse went over a jump behind them and spooked Elizabeth’s horse.
The result: broken arm right below the shoulder socket.
And eventually 2 shoulder surgeries.
Understandably, she hasn’t done much riding since, though she hasn’t written off riding forever.
So after 40+ years of riding horses without any serious incidents or injuries, she has two separate bone-breaks from horses within a few months of each other…
Far from average…
But wait, there’s more.
A couple of years later, Elizabeth starting feeling really sick out of the blue.
The short version of a long story is that we thankfully went to the Emergency Room and discovered she was septic with a blood infection.
Turns out it was an “equine” strain of infection.
Which is curious because at this point she’d spent very little time around horses, though they said it can also be carried by dogs. And we had been fostering several dogs leading up to this…
This could have had a BAD ending, but thankfully she came through it OK after spending some quality time in St. Joseph’s hospital where she was somewhat of a celebrity among the staff as this is apparently a somewhat rare condition.
OK, so where am I going with all this?
It’s to drive home the point that both our lives and our personal finances can easily settle into an average - and sometimes mundane - experience.
And that’s OK. In fact, I think when it comes to your money, the less excitement the better.
Though maybe it hasn’t felt mundane recently with the investment markets and current events adding a little “spice” to all our financial lives.
Nevertheless, it’s easy to settle into a certain set of expectations. What we’ve come to experience and what we believe we’ll continue to experience.
Nowhere is this more true than in the investment markets.
When markets are going up, it doesn’t take us long to convince ourselves they’ll keep going up. Even though we know markets don’t travel anywhere in a straight line.
Similarly, when the markets are moving sideways or down, it’s easy to believe they’re going to behave this way from now on.
In August of last year, I wrote about averages using Miami’s average wind speed as an example.
And as you may have heard, just a few weeks ago in Ft. Lauderdale, FL, they received - based on their average experience - about 4-5 months of rain in a single day.
I’m still not sure how this is possible, but again, that’s the danger of relying too heavily on averages.
The average annual rainfall in Ft. Lauderdale is about 63 inches.
But on April 12th, they received over 25 inches of rain in about 12 hours which led to severe flash flooding.
And they’re still dealing with the impact of what’s been referred to as “once in a 1,000 years” rainfall.
Was there a way to prepare for this kind of rainfall in such a short period of time?
I can’t see how.
But is there a way to prepare for unexpected “shocks” to your financial life and your investment portfolio?
Absolutely.
It’s not perfect and it’s not prescient, but it’s the best tool we have.
And it’s stress-testing your plan, your assumptions, your goals, and your priorities in all kinds of economic and market environments.
What if you retired at the start of the Great Depression back in 1929?
We can look at that.
What if you started saving and investing for your financial future in the early 80s at the start of a multi-decade bull market run?
Let’s look at that too.
And all other sorts of economic and market environments based both on history as well as simulated futures.
This approach - while helpful - still doesn’t eliminate our emotional reactions to what’s happening in the world around us or in our own portfolios, but I’d like to think it’s comforting to know that your plan is still on track - or can easily be adjusted to get back on track - because we’ve already stress-tested and made plans for virtually whatever may come.
I can’t imagine what a “once in a 1,000 years financial flash flood” might look like, and frankly, we have less than 200 years of reliable historical financial and investment data to reference.
But just remember that the past is no indication of the future.
This is true whether we’re talking about average rainfall, average wind speed, average investment returns, or the average of a lifetime riding horses.
Yet doesn’t this perspective conflict with the danger of thinking (and feeling) that “this time is different?”
Welcome to financial planning, my friends 😉
Links & things
Speaking of Average…
Unrelated to my comments above, but a good reminder about our personal relationship to “average” from Derek Sivers which makes for a pretty solid approach to life:
The 100-Year Old Doctor
Born in 1922, this still-practicing medical doctor and neruologist offers 5 tips on things not to do in order to live a long, happy life.
Happy Anniversary
Did you know we all recently celebrated a noteworthy anniversary? And this is particularly relevant based on my “beware of averages” comments above. Read more here:
Early Retirement & Healthcare
I recently recorded a webinar with Christine Simone, co-founder of Caribou, on what to be aware of if you’re retiring prior to Medicare eligibility at age 65. Check it out and let me know if you have any questions:
Thank You!
I’m grateful to have you as a reader.
If you have any questions or an idea for a future newsletter, blog post, or YouTube video, I'd love your input.
Just hit reply - I read (and truly appreciate) every email you send.
Until next Wednesday,
Russ
*some links and references from older articles & letters might no longer be working