Financial progress 
Moves like a glacier. Slowly 
It carves through mountains

It’s odd to think about, since America is often referred to as a young country, but it holds claim to having the oldest functioning national constitution in the world. This excludes The Constitution of San Marino, which hasn’t been fully codified. Also, San Marino covers an area of about 23 ½ square miles and has a population equal to a bit less than 1/2 of a Taylor Swift concert. (No offense to any San Marinonians who might be reading this.)

The Constitution has been amended 27 times, most recently in 1992. It’s interesting to think that there have been zero changes to the constitution since the internet became something an average person could have in their homes. In fact, the 27th amendment was ratified less than a decade after personal computers became affordable and relatively commonplace in American homes. Also, in 1992, the latest and greatest cell phone was the Nokia 1011. At this rate, we may see fully sentient Artificial Intelligence and human life on Mars before we see another amendment to the US Constitution. Perhaps a Martian AI can write a new amendment for us.

All of this is yummy food for thought, and potentially nuclear Thanksgiving arguments, considering "the Constitution was designed to be amended, so that it could adapt to changing circumstances and new challenges.”

The point is, our system of government doesn’t change much. It does not iterate often. And this is important.

I like to think of the way our intertwined Public and Private enterprises work as a building. The government is like the foundation and the surrounding land. You don’t want the ground to be shifting too much, which would crack the foundation. Furthermore, it’s extremely difficult and risky to alter a foundation once the building is built. The ground and the foundation need to be firm and stable to support a structure. The more stable the ground, the more solid the foundation, the larger and more magnificent the structure it can support.

The building is our financial system. It can change more easily. Floors or rooms can be added or taken away. Iteration is still expensive and difficult, but it is somewhat easier to accomplish than updating the foundation. Changes happen, but they happen slowly and rarely.

In fact, most of the time iteration at this level usually occurs only when there is a problem. Either a disaster strikes, and you need to rebuild a damaged structure so that it can withstand a similar mishap, or the building is inadequate to support the needs of the people within it and must be updated.

Which brings us to the building’s inhabitants: people of all stripes working in private businesses of various sizes and complexity. Those businesses can exist as long as the technology within the structure can support them. That means those businesses, and those people, can iterate quickly, and often, as they explore new ideas and opportunities. This capacity for versioning leads to amazing progress. That progress all happens within the relatively stable financial building, which is based on the even more stable foundation and ground of the government.

The problem is that the amazing ability for people to iterate within this relatively static framework appears to produce a conflict. As Moore’s Law plays out, and iteration accelerates, immediate gratification becomes normal. When people can get what they want with the tap of a finger, the process by which today’s luxuries become tomorrow’s necessities accelerates too. What do we want? Everything! When do we want it? YESTERDAY!

Which naturally brings me to the process of opening up and using an investment account, buying insurance products, or investing in real estate.

If there is a motto that binds all of these assets together, it is this: hurry up and wait.

If you want to open an investment account to manage on your own, the process has gotten MUCH faster in recent years. I recently opened an IRA and made my 2022 contribution within about half an hour.

Where things bog down is when you want your money to be professionally managed. This process involves signing various agreements and acknowledging the receipt of an assortment of regulatory disclosure documents. Once those documents have been signed and submitted to the custodian – the institution who will be holding your securities – someone in supervisory capacity must review and approve them before the account can be opened. The whole process can take anywhere from one to five days. If the pages and pages of 8 point font paperwork contain even one mistake, the process starts over. As an advisor, there is a special experience of anxiety and depression whenever you see a “NIGO” alert, which stands for “Not In Good Order.”

Once you have your investment account, trading into and out of stocks and bonds has its own timeline, called a Settlement Period. Once a trade is made, there is a period of zero to two days, depending on whether the trade in question involved a CD, stock, bond, option, etc., before the funds from the trade will settle in the account. This means it may take 2 days starting the day after a sell order is filled before you can do anything with the sale proceeds.

Insurance Companies are some of the oldest active institutions on earth. Some people peg the origin of insurance in ancient Rome, when Roman soldiers would pool their funds together to provide for their families should they not return from a battle. When something is that old, you can bet it moves slowly.

Annuity contracts involve a process called suitability. This involves a carrier reviewing an applicant’s financial information and making sure the product in question is suitable for the client’s situation. For example, if someone already has most of their money in annuities, an annuity carrier may determine that another annuity purchase would restrict the customer’s liquidity too much and deem it unsuitable.

This process can take anywhere from 5 days to a month or more. Turnaround time at insurance carriers for processing and approving paperwork is generally 5-10 business days. Again, any mistake on the paperwork restarts the clock.

With life insurance, medical underwriting can take weeks. You have to schedule an appointment, have labs drawn, and then wait for the results to come back. Those results then get evaluated by insurance underwriters. And of course, all of this happens only after you submit a labyrinthine application that itself must be reviewed and approved.

With real estate, anyone who has bought a house is familiar with the need for patience with the process. Once a seller approves a buyer’s offer, a 30 – 45 day waiting period begins before the sale closes. If the house is being sold via a short sale, the process can take several months. Within this process is the sub-process of loan approval, which can take several days up to a couple of weeks.

All of these time restrictions are part of the American financial structure. They are the building on top of the government foundation. They can feel like a terrible nuisance when you’re enduring them. But they are there for a reason.

Mark Zuckerberg’s dictate to “move fast and break things” isn’t a great idea when it comes to most people’s financial lives. When people move more slowly, they can be careful. They can pay attention. They can look before they leap. Furthermore, it helps our regulatory agencies do the work necessary to avert disasters like the Great Depression and 2008 Financial Crisis.

In fact, our modern financial system was born out of the Great Depression. The Securities Act of 1933 gave birth to the regulatory system around new issues of stocks and bonds. The Securities and Exchange Act of 1934 produced the SEC. The Investment Advisors Act and Investment Company Act of 1940 created mutual funds, closed end funds, and regulations around the professional management of other people’s money. As bad as 2008 was, it was nowhere near the almost-apocalypse that was the Great Depression. That disaster nearly blew the house down. All of those onerous regulations have, so far, managed to prevent a similar calamity.

Then, perhaps most importantly, there is the time required for all of these regulated investments to actually do the job of growing your money.

The nature of compounding is that it produces a curve. A curve, by nature, has a flat section and a steep section. The flat section, when you’re in it, can feel like a cage. You make contributions, you reinvest dividends, you stay invested through bull markets and recessions, and progress seems to happen mere millimeters at a time.

But, little by little, the curve gets steeper. A 3% return on $1,000 is $30. But a 3% return on $1,000,000 is $30,000. It can be a worthwhile reference to think of Warren Buffet, who started investing at age 11, in 1942 (right after the construction of America’s regulated financial “building”). It took him until age 32 to make his first million dollars. When he turned 80, Forbes listed his wealth at $47 billion. Then a mere 11 years later that number had more than doubled to $96 billion. What is the rate of return required to double money in 11 years? About 6.5%. For reference, the S&P 500 index has averaged 8.19% over the past 20 years. One of the wealthiest people in the world, and someone who’s company’s annual conferences take place in packed arenas, could have gotten a better return in the index fund my children own in their own accounts.

(Clearly, Mr. Buffet is trying to achieve something other than the maximum possible return. The lesson here isn’t that he underperformed the index, it’s that he did just fine for himself while underperforming it).

While 99.99% of us will never be billionaires, we can all benefit from patience and taking our time when putting our money to work. True wealth, after all, isn’t about the number of zeroes in your account. It’s about having enough of what’s most important to you, whatever that might be.

If you would like to talk about what you want your money to do for you and take the time needed to create a plan and adjust it over the years of your life’s ebbs and flows, please reach out. We’d love to hear from you.