The Week on Wall Street
Stocks rallied last week as optimism about a potential U.S.-China trade deal grew. The S&P 500 advanced 0.80% during the 4-day trading week to 2,792.67. The Nasdaq Composite improved 0.86% to 7,527.54, and the Dow Jones Industrial Average gained 0.64% to 26,031.81.
FACT OF THE WEEK
Sleep talking, or somniloquy, is the act of speaking during sleep affecting many people. Half of all kids between the ages of 3 and 10 years old carry on conversations while asleep, and a small number of adults -- about 5% -- keep chit-chatting after they go to bed.
The renewed prospects for a trade pact were not the only development investors found appealing last week. There were indications that the Federal Reserve might be a bit less committed to its plans to raise interest rates further this year.
A Look at the Fed Minutes
There were no surprises from the Federal Reserve's Board of Governors, who released the transcript from their January meeting on Tuesday. Investors pore over the meeting minutes looking for clues about the Fed's next move on short-term interest rates.Fed policymakers appeared split on what's next. Some felt another rate hike was needed to help slow the strong economy, while others favored a "wait-and-see" approach.
Home Sales Slump
In January, existing home sales were at their slowest pace since November 2015, and down 8.5% year-over-year. One factor: rising home values. Last month, the median single-family home sale price was $247,500, almost $7,000 higher than a year ago.Mortgage rates have now fallen for three consecutive weeks, a development that may influence home buying decisions in coming months. Thursday, a Freddie Mac survey found the average interest rate on a 30-year, fixed-rate loan at just 4.35%.
The Dow Jones and Nasdaq have posted gains for nine straight weeks and are now at levels unseen since early November. Concerns over volatility have decreased, but that does not mean it is off the table. Whatever the market does in the coming weeks and months, remember your investing strategy should be based on your goals, risk tolerance, and time horizon.
FINANCIAL STRATEGY OF THE WEEK
What is diversification and why is it important?
If you invest in a single security, your return will depend solely on that security; if that security flops, your entire return will be severely affected. Clearly, held by itself, the single security is highly risky.
If you add nine other unrelated securities to that single security portfolio, the possible outcome changes - if that security flops, your entire return won't be as badly hurt. By diversifying the investments in your personal financial plan, you have substantially reduced the risk of the single security. However, that security's return will be the same whether held in isolation or in a portfolio.
Diversification substantially reduces your risk with little impact on potential returns. The key involves investing in categories or securities that are dissimilar: Their returns are affected by different factors and they face different kinds of risks.Diversification should occur at all levels of investing.
Diversification among the major asset categories - stocks, fixed-income and money market investments - can help reduce market risk, inflation risk and liquidity risk, since these categories are affected by different market and economic factors.
Diversification within the major asset categories - for instance, among the various kinds of stocks (international or domestic, for instance) or fixed-income products - can help further reduce market and inflation risk. Diversification among individual securities helps reduce business risk.
Please contact my office if you or someone you know would like help diversifying your portfolio.