Long-term wealth creation and preservation does not occur within a bubble. Rather, it’s influenced by many factors, including allocation choices, investment selection, career path, inheritance (and lack thereof), financial discipline, etc. It’s also affected by one’s health. To that end there are two non-financial actions you can take to boost (or at least preserve) your wealth: exercise and meditation.

The former could reduce your medical expenditures, while the latter can help improve your decision process. I’ll discuss both, with research on both.

Let’s start with exercise. A study published last year in the American Journal of Preventive Medicine (and referenced in this month’s issue of Money) found that being very fit during midlife led to a significant reduction in medical expenditures later in life relative to someone who isn't physically fit. The study was based on analysis of approximately 5,000 people. Each participant’s fitness levels were measured and recorded at an average age of 56. The study’s authors then tracked the Medicare claims filed by those individuals later in life until study participants passed away or the study period ended. Participants who had unfavorable cardiovascular health characteristics when they were in their 50s went onto have average non-cardiovascular disease expenditures of $5,058 per year. In contrast, those who were categorized as having favorable cardiovascular health averaged $3,883 in annual non-cardiovascular disease expenditures. Cardiovascular disease expenditures were also higher for the non-fit group, averaging an additional $600 per year. (Expenditures included Medicare, third-party insurance reimbursement and out-of-pocket costs.)

Beyond what we commonly perceive as physical health, exercise may also help with our cognitive abilities. This is an important benefit because declining cognitive skills leads to financial problems. A study published earlier this year in the Journal of Alzheimer’s Disease found that practicing yoga leads a “statistically significant improvement in depression and visuospatial memory.” (Visuospatial memory relates to our ability to recognize shapes and our environment.) The study’s authors think yoga may also specifically improve visual memory encoding—our ability to remember what we’ve seen.

As someone who has practiced yoga for well over a decade, I am obviously pleased with the study's results. However, before you roll out a yoga mat, I will caution that the results were based on a very small sample of people (14 in the yoga group and 11 in the memory exercise group), so further research is absolutely needed. What we do know, however, is that yoga does improve balance and strength and can lower stress—three big positives. Additionally, the Alzheimer’s Association has previously pointed to research that shows exercise to have a positive impact on cognitive skills. So while yoga specifically may not ward off cognitive impairment better than other forms of exercise, practicing it does yield benefits.

The yoga practice used in the study incorporated breathing, poses and meditation. It’s not clear if one part of the practice specifically had more influence than the others, but meditation does offer benefits by itself.

Among the benefits meditation offers is mindfulness. Mindfulness means being aware of the present moment. Being mindful sounds like a pretty obvious thing to do, but our minds wander nearly 50% of the time according to Jeremy Hunter, an assistant professor of practice at the Peter F. Drucker School of Management. If you think that number seems high, try this exercise from Headspace, a digital provider of meditation training that I subscribe to: Consciously acknowledge every time you change your posture, meaning standing up, sitting down or laying down. It may sound easy, but I can tell you from personal experience that it’s not.

A big reason why it’s not easy is our brain’s system 1. System 1 is quick, intuitive and relies on mental shortcuts (heuristics) to make decisions. System 2 is slow and deliberate. We like to think we’re engaging System 2 when we’re making important decisions, but in reality we most often use System 1. In fact, Daniel Kahneman says System 2 spends most of its time rationalizing the decisions made by System 1.

The danger of System 1 is its automation and tendency to be reactive. System 1 works well for getting us to run when we’re in physical danger, but not when it comes to making portfolio decisions. Rather, we need the logic of System 2 to think through the potential ramifications of our actions. We also need System 2 to check our orders to ensure we’re not making a mistake, whether it's entering the wrong ticker or clicking on “buy” when we really intend to sell.

Meditation helps us to engage System 2 by making us more aware of the present. Even the mere practice of closing our eyes and focusing on the act of breathing for a minute or two can make a huge difference. A short mental timeout can be all a person needs to stop and think through the action they are about to take. That alone can help boost wealth by engaging System 2 more often.

• Health Savings Accounts – Since I’m talking about health and finance this week, I should mention that the new July AAII Journal features an overview of health savings accounts (HSAs).
  
• Aging and Investing: The Risk of Cognitive Impairment – Harvard University David Laibson discussed how cognitive impairment compromises one’s ability to make good decisions.
  

• Model Shadow Stock Portfolio: The Limitations of a Real Portfolio – AAII founder and chairman Jim Cloonan’s latest quarterly commentary about the Model Shadow Stock Portfolio is now online.
  
• Using the Z-Score to Assess the Risk of Bankruptcy – The Z-Score identifies whether a company is at risk of financial distress; its creator talks about how to use the model.
  

Second-quarter earnings season will “officially” start next week. The only Dow Jones industrial average component scheduled to report will be JPMorgan Chase & Co. (JPM), on Thursday. Joining it will be 12 other members of the S&P 500, including fellow banks Citigroup (C), U.S Bancorp (USB) and Wells Fargo (WFC) on Friday.

The week’s first financial reports will be the Labor Department’s May Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. Wednesday will feature June import and export prices and the Federal Reserve’s periodic Beige Book. The Bureau of Labor Statistics will release its June Producer Price Index (PPI) on Thursday. Finally, Friday will feature the June Consumer Price Index (CPI), June retail sales, the July Empire State manufacturing survey, June industrial production and capacity utilization, May business inventories and the University of Michigan’s preliminary July consumer sentiment survey.

Seven Federal Reserve officials will make public appearances this week: Cleveland president Loretta Mester on Monday and Tuesday, Kansas City president Esther George on Monday and Thursday, Minneapolis president Neel Kashkari on Tuesday and Friday, Dallas president Robert Kaplan and Philadelphia president Patrick Harker on Wednesday, and Atlanta president Dennis Lockhart and St. Louis president James Bullard on Thursday.

The Treasury Department will auction $24 billion of three-year notes on Monday, $20 billion of 10-year notes on Tuesday and $12 billion of 30-year bonds on Wednesday.

Optimism among individual investors about the short-term direction of stock prices is near a three-month high in the latest AAII Sentiment Survey. Pessimism pulled back for a third consecutive week, while neutral sentiment rebounded.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 2.1 percentage points to 31.1%. Optimism was last higher on April 20, 2016 (33.4%). Nonetheless, bullish sentiment remains below its historical average of 38.5% for the 35th consecutive week and the 68th out of the past 70 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 4.6 percentage points to 42.3%. The rise keeps neutral sentiment above its historical average of 31.0% for the 23rd consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.8 percentage points to 26.7%. This is lowest level of pessimism since April 20, 2016 (23.9%). The historical average is 30.5%.

This is just the eighth week this year with more than three out of 10 individual investors describing their short-term outlook for stocks as “bullish.” (Optimism was at 30.0% on March 16.) In contrast, more than four out of 10 respondents have described their outlook as “neutral” on 15 out of this year’s first 27 weeks. As far as pessimism goes, bearish sentiment has topped 30% 14 times this year.

The rise in optimism occurred as prices rebounded, with large-cap stocks trading back near their record high. Concerns about Brexit have not subsided, however.

This week’s special question asked AAII members what factors are most influencing their six-month outlook for stocks. The top two factors were the U.S. presidential election (listed by 45% of respondents) and global economic uncertainty (named by 39%). More than one out of four respondents (27%) specifically pointed to the uncertainty being created by the vote in Britain to leave the European Union (Brexit).  Nearly 17% of respondents cited prevailing valuations, with several describing them as being too high, while about 16% cited Federal Reserve policy and frustration with the still-low level of interest rates. Slightly more than 13% cited earnings, with several respondents saying growth is too slow. Many respondents listed more than one factor.

Here is a sampling of the responses:

• “Uncertainty with this election cycle”
• “Continued slow GDP and earnings growth”
• “The agreed upon terms of the UK’s exit from membership in the EU”
• “Stock valuations are at historical highs and this bull market is getting very old”
• “Overall uncertainty with the EU and the presidential race”

Bullish: 31.1%, up 2.1 points
Neutral: 42.3%, up 4.6 points
Bearish: 26.7%, down 6.8 points


Bullish: 38.5%
Neutral: 31.0%
Bearish: 30.5%

Individual investors boosted their exposure to equities while reducing their fixed-income and cash allocations last month, according to the June AAII Asset Allocation Survey. The majority of the results were recorded prior to the Brexit vote.

Stock and stock fund allocations rose 1.2 percentage points, to 64.1%. The increase keeps equity allocations above their historical average of 60.5% for the 39th consecutive month.

Bond and bond fund allocations declined 0.4 percentage points, to 17.4%. This was the first decrease in four months. Nonetheless, bond and bond fund allocations are above their historical average of 16.0% for the 11th consecutive month.

Cash allocations declined 0.8 percentage points, to 18.5%. June was the 55th consecutive month with cash allocations below their historical average of 23.5%.

During the past four months (March through June), allocations overall have not changed much. The biggest fluctuations have been in cash, which has ranged between 17.6% (April) and 19.3% (May). Though optimism for a short-term increase in stock prices has remained low in our weekly Sentiment Survey, low yields have kept bonds from being appealing in the eyes of many individual investors.

Last month’s special question asked AAII members what, if any, allocation changes they expect to make during the second half of this year. One out of three respondents (33%) intend to increase their equity exposure. Several of these respondents said they would do so if stock prices were to drop by putting cash to work. Conversely, 18% intend to raise cash, with several selling stocks to do so.  Approximately 10% plan on boosting their bond exposure. More than 26% of respondents do not intend to make any changes or to make only very modest changes.

Here is a sampling of the responses:

• "I’m looking for a significant pullback to add stocks and stock funds.”
• "I plan to sell on any significant run-ups in the stock market and park the proceeds in cash.”
• "None. Remain fully invested for the long term.”
• "Move into stocks if the market tanks.”
• "Small increases in bond fund and cash holdings relative to stock fund holdings.”

• Stocks and Stock Funds: 64.1%, up 1.2 percentage points
• Bonds and Bond Funds: 17.4%, down 0.4 percentage points       
• Cash: 18.5%, down 0.8 percentage points

• Stocks: 30.4%, down 1.1 percentage points
• Stock Funds: 33.6%, up 2.3 percentage points
• Bonds: 3.7%, down 0.7 percentage points           
• Bond Funds: 13.7%, up 0.3 percentage points

Take the Asset Allocation Survey.

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