mickeyd
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
My Mom had cognitive impairment prior to her death 10 years ago. Because of this fact, I am always tuned in to these kind of articles about cognitive impairment of investors. I have always felt very capable of making our familly financial/investment decisions and believe that I have achieved a good bit of success in doing so. When will my ability begin to falter? Will I recognize it? Will DW recognize it?
Very thought-provoking article.
Very thought-provoking article.
Scientists no longer view cognitive impairment in old age as simply a misfortune that strikes some who suffer from a random event such as Alzheimer’s or a stroke. There is increasing evidence that cognitive decline in old age is natural and inevitable. In fact, the rate of decline in old age does not appear to be slowed by education or intelligence, and is unaffected by solving crossword puzzles or reading Russian novels. Our brains, like the rest of our body, lose their ability to respond quickly and precisely over time.
In a series of academic studies on cognitive aging, Timothy Salthouse, director of the University of Virginia Cognitive Aging Laboratory, tests mental functioning by asking respondents to perform tasks such as naming a synonym to a random word, detecting patterns or recalling a list of words. Coming up with a synonym is an example of a task that requires crystallized intelligence, or the ability to process a stimulus (the word) and relate it to an item in memory (the synonym). Tasks requiring processing and some knowledge or experience tend to peak in the late 50s. The other tasks require speed, reasoning and memory. These skills test fluid intelligence, which tends to peak in the 20s. Einstein’s so-called magic year occurred when he was 26 years old.
Investing and the Aging Brain:
Like the synonym task, financial decision-making requires both the ability to respond to a stimulus and to place it into context through knowledge. Recent academic studies find that respondents make their best financial decisions when they are in their mid 50s. Sumit Agarwal, a senior financial economist at the Federal Reserve, and his co-authors found that effective financial behavior, such as limiting credit fees and interest rates paid on home equity loans, peaked in the late 40s and early 50s. Studies of investments confirm this financial performance peak in late middle age. George Korniotis and Alok Kumar, professors at the University of Miami, find that risk-adjusted investment returns decline with advanced age. Investors over 70 underperform by about 2% annually compared to younger investors.
A recent study using data from the Texas Tech Financial Literacy Assessment project shows that the decline in our ability to make basic financial decisions mirrors the results on investment and credit performance. The study found that the ability to understand financial concepts and apply them appropriately peaks in the early 50s and declines by about 2% per year after age 60. The rate of decline is no different at older ages, and a score at age 90 is about half what it was at age 65. Like other research on cognitive aging, this study found no increase in the dispersion of scores later in life, indicating a gradual decline among all older respondents rather than a few seriously impaired subjects dragging down the average.