Tuesday, 26 February 2008

Financial Risks Can Be Health Risks Too

The BBC reports in Bank Crises 'deadly for health' that researchers have determined that financial crises and runs on banks, such as that occurring this past autumn at the Northern Rock, can cause a spike in heart attacks among the population. The article interestingly notes that older people are especially susceptible to heart attacks; perhaps a higher than expected risk aversion amongst older people is an instinctive adjustment for self-preservation? How often does one hear people say, "I don't want the stress of equity investment", or "I cannot take the stress anymore"? Maybe they are reacting to internal health messages from their body?

Another issue is that a proper appreciation of the relative real risk of various assets and holdings is essential. Do people need to be told that even banks are not perfectly safe and that low probability of failure is not equal to zero probability? Various politicians and business leaders who say that things are "perfectly safe" are actually doing everyone a dis-service. It is easier to face a known hazard than to deal with a nasty surprise when it was thought there was no chance of the bad thing happening.

To me this is another reminder that diversification - spreading investments and assets around so that if one fails others prevent calamity - is an essential protection.

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