Society & Culture - Posted by Dan Aloi-Cornell on Monday, June 28, 2010 16:29 - 4 Comments 
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(No Ratings Yet) Loading ...Depressed lose financially by playing it safe
Because stockholding and making investments is key to long-term wealth-building, those who, because of mental health issues, fail to take the appropriate levels of risk for their portfolio, may be causing long-term negative effects on their financial situation, researchers say. (Credit: iStockphoto)
CORNELL (US)—The way many workers manage their retirement assets may ignore the effects of mental health disorders or substance abuse problems on investment decisions, according to new research.
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The text of this article by Futurity is licensed under a Creative Commons Attribution-No Derivatives License.
One out of three households in the United States has at least one person diagnosed with a mental health disorder. Those individuals hold a greater percentage of their assets in bonds or cash, demonstrating a pattern of risk aversion when making financial decisions.
The researchers began by exploring “general tendencies and patterns in investments and health,” explains Vicki Bogan, assistant professor of applied economics and management at Cornell University.
While physical health impacts have been studied, the effect of mental health on economic decision-making has been “an interesting and unexplored area in the literature,” she says.
“The most prevalent diagnosis is depression, and there has been some research linking depression with taking less risk, and work linking Seasonal Affective Disorder with financial market activity,” she explains.
In addition to households affected by mental illness decreasing investments in risky instruments, Bogan discovered “that single women diagnosed with a psychological disorder significantly increase their share of financial assets devoted to safe investments and have an increased probability of holding safe assets.”
Mental health issues can adversely effect “an individual’s motivation to invest for future returns,” Bogan says.
Physical or mental health issues also reduce productivity and earnings while increasing medical spending, “thereby reducing the availability of funds to invest; it may also cause a household to change its portfolio allocation toward more liquid assets.
“Historically, portfolio choices of stock have been vital to economic advancement and wealth building, particularly during prosperous economic times,” Bogan says.
Bogan says people who focus too much on safe investments could put themselves at an economic disadvantage.
“It begs further research,” Bogan explains. “We know that stockholding and making investments has been a key to long-term wealth-building. And for those not taking the appropriate levels of risk for their portfolio, it could have long-term effects on their financial situation.”
Researchers at the University of Georgia contributed to the study.
More news from Cornell University: www.news.cornell.edu
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4 Comments
Investing into something is really not an easy thing to do. So playing it safe is just a reasonable action.
Playing it safe is reasonable where there is a lack of information and confusion around a subject, regardless of mental stability.
This doesn’t surprise me. One of the central aspects of depression is a turning inwards and an aversion to change. Financial risk aversion goes with that.
I note that Vicki Bogan is an economist and not a health professional. There isn’t much that would be more harmful to a depressed person than if they put their money in risky investments and lost the lot. Even if they just had some loss, the tendency in depression to over-emphasise the negative would me that the depressed person would catastrophise that loss.
Being adverse to risk may not be a bad investment choice in the current economic climate. Trying to determine the appropriate level of risk has always been the hardest part of investment.