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Opinion: Investment strategy is financial prescription to avoid ‘wealth shock’

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A recent health study says “wealth shock” is a real phenomenon that could be hazardous to your health. A sudden and significant drop in an investment portfolio value can have the equivalent impact of a diagnosis for cardiac health disease.

It may not take a health study to tell you that a significant plunge in your investment portfolio is psychologically painful, but the findings of a recently published article in the Journal of the American Medical Association clearly linked one’s financial health with one’s physical health.

With increased stock market volatility now seemingly a weekly occurrence in 2018, investors may be feeling more of the symptoms of negative wealth shock.

With shifting government policies on international trade tariffs, stretched stock valuations and a nine-year bull run that may be starting to peak, the level of volatility in the stock market may be moving back to more historical norms versus the relative period of stability over the last two years.

Indeed, financial health may have more influence on physical health than first realized, according to the recent Health and Retirement study conducted by researchers at Northwestern University’s Feinberg School of Medicine in Chicago. American adults who experienced a sudden and substantial loss of wealth were 50 percent more likely to die in a 20-year period than were others in their age group whose financial situation remained relatively stable or improved.

Researchers came to this conclusion after carefully tracking a group of nearly 9,000 Americans who participated in the study. Participants were born between 1931 and 1941 and were tracked from 1994 until death or 2014, whichever came first.

The study computed the net worth of each participant in 1994 and updated that figure every other year. Researchers used these figures to measure any substantially negative wealth reversal, defined by the study as a loss of 75 percent or more of one’s portfolio value over a two-year period.

This abrupt loss could cause stress, inflammation and/or high blood pressure, any of which could make serious cardiovascular problems more likely, the study said. In addition, a financial setback of this scale may well have prompted people to skip important medical appointments or to stop filling necessary prescriptions.

So one may not think this is news, but a dramatic decline in one’s investment portfolio is apparently a genuine health issue that could potentially impact many investors.

During periods of increased market volatility, many investors become nervous and begin to question their investment strategies. Remember that it is the nature of the markets to move up and down over the short term, so attempting to time the market is nearly impossible. In these normal cycles, it is important to stay focused on your long-term asset allocation goals.

Having a well-thought-out allocation that can weather these changes helps investors sleep better at night.

How to maintain your financial health during periods of increased stock market volatility:

• Call your financial adviser if you feel stress over your portfolio.

• Focus on what you can control. World events, inflation and economic growth are just a few factors you cannot control, so worrying about them doesn’t help. You can, however, control how much you spend or save, as well as the diversification within your portfolio. Focus on factors within your control to help manage stress.

• Limit the noise. If you get unnerved by the market, tune out the media. Watching and listening to “chatter” can increase your discomfort.

• Set a strategy and stick to it. Don’t get off course to chase an investment fad or decide to sit on the sidelines because markets shift. Once you have a disciplined investment strategy that supports your long-term financial goals, stick to it. To ensure your strategy still supports your goals, review it annually or as life events, such as retirement, occur.

Drew Spencer is a portfolio manager with Commerce Trust Co. He can be reached at


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