Planner's pulpit
News Flash
Posted on January 16, 2008 by Rev. John F. Harrison, CFP®
I've been reading about a number of academic studies that looked at the affect of a person's emotional state on his physical health. A British study found that happy people tend to have less of the stress hormone cortisol in their systems. And there is plenty of documented evidence to the effect that stress either causes or exacerbates a number of diseases. This same British study also concluded that happy people had less fibrinogen, which is a risk factor for heart disease.
On this side of the Atlantic, a 2006 study at Carnegie Mellon University found that happy people were more resistant to colds and flu. One researcher stated that they were going to have to start "taking seriously" the idea of a link between attitude and physical health.
Of course, somewhere around 1,000 years B.C., Solomon penned the verse we call Proverbs 17:22:
A merry heart does good, like medicine, but a broken spirit dries the bones. And King Solomon didn't even have a research grant! As is often the case, it just took science a long time to figure out what the Bible has always declared to be true.
Similarly, the January 2008 issue of Financial Planning magazine features an article by Craig Israelson that details the benefits of diversifying a retirement portfolio across a number of asset classes. Asset classes refer to broad categories of investments, such as stocks, bonds, and cash equivalents, to name three.
Particularly for portfolios in the distribution phase - that is, where people are tapping their nest eggs for retirement income - it is beneficial to get asset classes whose returns are not closely correlated with each other. Examples of asset classes that are non-correlated with each other would include the U.S. stock market, commercial real estate, and commodities such as oil or natural gas.
Israelson's analysis of the 36 years from 1970-2006 showed that a portfolio of non-correlated assets classes was attractive for several reasons. But how many assets classes are ideal?
He tested different hypothetical portfolios of two, three, four, five, six, and seven assets. He found that the seven-asset portfolio had the highest internal rate of return. It also had lower risk, as measured by the standard deviation of returns. In no single year of the thirty-six would this portfolio have sustained a loss greater than 10%. Considering how the domestic stock markets performed during the horrible bear market of 1973-1974, as well as in the crash of 1987 and the terrorist attacks of 2001, that's pretty impressive.
Who could have predicted that the seven-asset portfolio would prove to offer both lower risk and higher return than the others? Well, the astute Bible reader might have. Modern statistical research is again proving what scripture has always said. In Ecclesiastes 11:2 we read, Give a portion to seven, and also to eight; for thou knowest not what evil shall be upon the earth. Political and economic uncertainty has always been the rule, rather than the exception. As we enter a new year full of stock and bond market jitters (aren't they all?) smart diversification remains one of the cornerstones of prudent investing.
News Flash
Posted on January 16, 2008 by Rev. John F. Harrison, CFP®
I've been reading about a number of academic studies that looked at the affect of a person's emotional state on his physical health. A British study found that happy people tend to have less of the stress hormone cortisol in their systems. And there is plenty of documented evidence to the effect that stress either causes or exacerbates a number of diseases. This same British study also concluded that happy people had less fibrinogen, which is a risk factor for heart disease.
On this side of the Atlantic, a 2006 study at Carnegie Mellon University found that happy people were more resistant to colds and flu. One researcher stated that they were going to have to start "taking seriously" the idea of a link between attitude and physical health.
Of course, somewhere around 1,000 years B.C., Solomon penned the verse we call Proverbs 17:22:
A merry heart does good, like medicine, but a broken spirit dries the bones. And King Solomon didn't even have a research grant! As is often the case, it just took science a long time to figure out what the Bible has always declared to be true.
Similarly, the January 2008 issue of Financial Planning magazine features an article by Craig Israelson that details the benefits of diversifying a retirement portfolio across a number of asset classes. Asset classes refer to broad categories of investments, such as stocks, bonds, and cash equivalents, to name three.
Particularly for portfolios in the distribution phase - that is, where people are tapping their nest eggs for retirement income - it is beneficial to get asset classes whose returns are not closely correlated with each other. Examples of asset classes that are non-correlated with each other would include the U.S. stock market, commercial real estate, and commodities such as oil or natural gas.
Israelson's analysis of the 36 years from 1970-2006 showed that a portfolio of non-correlated assets classes was attractive for several reasons. But how many assets classes are ideal?
He tested different hypothetical portfolios of two, three, four, five, six, and seven assets. He found that the seven-asset portfolio had the highest internal rate of return. It also had lower risk, as measured by the standard deviation of returns. In no single year of the thirty-six would this portfolio have sustained a loss greater than 10%. Considering how the domestic stock markets performed during the horrible bear market of 1973-1974, as well as in the crash of 1987 and the terrorist attacks of 2001, that's pretty impressive.
Who could have predicted that the seven-asset portfolio would prove to offer both lower risk and higher return than the others? Well, the astute Bible reader might have. Modern statistical research is again proving what scripture has always said. In Ecclesiastes 11:2 we read, Give a portion to seven, and also to eight; for thou knowest not what evil shall be upon the earth. Political and economic uncertainty has always been the rule, rather than the exception. As we enter a new year full of stock and bond market jitters (aren't they all?) smart diversification remains one of the cornerstones of prudent investing.
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Making Lemonade
Health Savings Accounts
REMNDR
News Flash
How bad is it?
It's no secret
Responding to market mayhem
Is there a topic you'd like us to talk about? Email your suggestions or questions to us.