When people talk about the keys to good health, they always talk about balancing mind, body and spirit. However I believe they are missing the key ingredient of financial health. Health and wealth are interconnected and if any of the pillars of health are disturbed, it can cause sickness and even death.
As a registered investment advisor, we have seen the anecdotal evidence that severe stock market disturbances, or financial hurricanes, can cause stress, sickness and death. In the midst of the financial crisis, we took on new clients that had lost over 50% of their assets. Even though they still had substantial assets to live on, the stress and anxiety from the market decline caused many of them physical and mental distress. Two clients ended up with cancer and died within a year. Because we have seen this time and time again, we have made it a mission to protect client assets before a financial hurricane hits. Not only does it protect client wealth, but it also protects client health.
Research Proves the Link Between Health and Wealth
Recent studies have confirmed what we have witnessed firsthand. The first study was conducted by a team at San Diego University which was published in the American Journal of Preventive Medicine. The team examined Americans' Google search patterns and discovered that during the recent financial crisis, people searched much more frequently for information about health ailments. The study compared the cumulative difference between queries observed and expected based on trends prior to the study period of December 2008 to 2011.
During the financial crisis, searches for stomach ulcer symptoms and headache symptoms saw staggering increases of 228% and 193%. Other top maladies involved headache, hernia, chest pain and arrhythmia which led to 41%, 37%, 35% and 32% more queries than expected. Epidemiologist John Ayers said, “The Great Recession undoubtedly got inside the body via the mind.”
Bear Markets Send Investors to the Hospital
Another study was conducted by finance professors Joseph Engelberg and Christopher Parsons from U.C. San Diego. They studied over 30 years of hospital data in California. They found that sharp stock market declines are highly correlated to immediate spikes in hospital admissions. Anxiety, panic disorder and depression were the most pervasive conditions leading to hospitalization.
Engelberg and Parsons found that a one-day drop in equities of around 1.5% is followed by about a 0.26% increase in hospital admissions on average over the next two days. After the Black Monday crash in 1987, admissions jumped more than 5%! They also found that the effect of a large market drop is twice as strong during periods of low volatility because “extreme returns are more surprising to investors.”
A separate study of North Carolina hospital patients by Duke University, published in the American Journal of Cardiology in 2010, found the stock market crash of 2008 to be associated with a spike in the rate of heart attacks.
The Suicide Link
In even more disturbing research, suicides and a weak economy/stock market appear to have a direct link. In a letter to The Lancet medical journal, scientists from Britain, Hong Kong and the United Sates said analysis of data indicated that while suicide rates increased slowly between 1999 and 2007, the rate of increase more than quadrupled from 2008 to 2010.
This isn't limited to the working class either. In 2009, German billionaire Adolf Merckle committed suicide from the distress to his firms caused by the financial crisis. The previous year he was on Forbes list as the 94th richest person in the world.
How to Keep Financially Fit?
It is therefore imperative to balance the four pillars of health: mind, body, spirit and finance. Stay healthy and out of the hospital. Here are a few tips for keep financially fit:
1) Only invest the money that you can afford to risk. There are no guarantees.
2) Come up with a prudent bear market strategy or find an advisor that will help you protect assets before the next bear market.
3) Invest in high quality. Take the Warren Buffett approach as he says, “Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.”
4) Turn off CNBC! The media loves to sensationalize. Just check out this clip of the talking heads at CNBC during the fall of 2008. The minute to minute coverage only heightens distress.
Do you know someone that got sick in the last financial crisis? Do you have any tips to stay financially fit? Please leave them in the comments below.