If you have even 10% of your wealth in the stock market and experience only a 10% loss, your risk of dying early, or having a physical health problem like high blood pressure or a mental health problem such as depression, increases significantly.
That’s according to a recent study published in the American Economic Journal. These losses are known as “wealth shocks,” which the study found “strongly affect physical health, mental health, and survival rates.”
Among every 100 retirees with money in the market suffering a 10% wealth shock, one additional person will die within the next two years, and 2.5 more will develop health problems.
The study didn’t examine the impact of a bigger drop than 10%, but it’s easy to imagine it would be worse.
It’s not rocket science to realize there is a close connection between your health and your wealth.
It’s not just the risk of early death and sickness you need to worry about…
The anxiety, anger, and frustration you feel caused by negative stock market returns also “makes investors more prone to driving errors and lapses.”
A market loss of as little as 1½% (which can happen on an almost daily basis during periods of higher market volatility) was found to increase the number of fatal car accidents by .5%, as reported in another economic journal last year.
Doesn’t it make you wonder what the impact is when the market drops by 10%, 20%… or 50% or more, as has happened twice – just since the year 2000?
Yet another study that examined patient records for every hospital in California over nearly three decades found a connection between market declines and hospital admissions, particularly for mental health conditions like anxiety, panic attacks, and major depression.
When the market fell nearly 25%, “hospital admissions spiked over 5%” immediately, for example.
The study’s conclusion: “stock market declines today result in psychological distress today.”
But here’s what’s really scary…
Americans Have Very Little Savings Outside of the Stock Market and Real Estate, According to the Federal Reserve Survey of Consumer Finances
And those are the two financial assets most likely to suffer big losses during a market crash or recession.
In case dying early, physical and mental health problems and fatal car crashes aren’t enough reasons not to over-rely on the stock market for growing your retirement savings, consider these additional reasons:
- With the current bull market now hitting its 10th birthday, we are past due for a major market crash
- Since 1929 we’ve had three market crashes where the Dow took between 16 and 25 years to recover to pre-crash levels
- The sad reality is that – even after suffering through all the stomach-churning rollercoaster ups and downs of the stock market – the average investor in equity mutual funds has gotten only a 5.29% annual return over the last two decades! (Source: DALBAR 2018 Quantitative Analysis of Investor Behavior)
Given all of this, would it be worth doing some serious soul searching right now to determine if you have too much of your retirement savings at risk in the market?
Market volatility is a fact of life. If you have money in the market, there is no avoiding the ups and downs. We had two market corrections of 10% or more last year. But, as we’ve seen, even a 1½% drop can have dire consequences.
Does it really make good sense to put most or all of your nest-eggs in one volatile basket?
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- You could get an effective annual return of 5-7% over time, but without the risk of stocks, bonds, real estate or other volatile investments
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