Week 3: A good Start and Diversification and Asset Allocation

Information

Hello readers, Due to unavoidable family reasons, I had to skip last week’s regular post. I sincerely apologize for the interruption in our weekly schedule. Content will continue as usual from this week onward.

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Introduction

This week marks the third Week in our educational journey called ‘zero to one million’. After establishing the foundation of the portfolio and taking the first positions, the progress so far has been encouraging. The portfolio developed steadily.

For this week’s deep dive, we’ll focus on an essential topic: Diversification and Asset Allocation — Building a Resilient Portfolio. Understanding how different assets interact, how risk can be distributed, and how allocation frameworks work is key for anyone aiming to navigate financial markets responsibly.

Alongside this educational exploration, I will also highlight an interesting company from the wood manufacturing industry — not as a recommendation, but as an example for understanding business models and evaluating potential opportunities.

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Weekly Financial News Summary (U.S. Market Data)

This week brought several important economic updates from the United States — information that helps provide general context for market conditions. These indicators are useful from an analytical perspective, especially when a portfolio includes exposure to U.S.-based companies.

Key Developments:

• Unemployment Claims (Tue, Nov 18)
  Came in at 232K, slightly above the previous 220K.
  This indicates a modest increase in individuals filing for benefits, which is generally seen as normal short-term fluctuation.

• FOMC Meeting Minutes (Wed, Nov 19)
  No numerical figures were released, but the minutes offer insights into how the Federal Reserve views economic conditions such as inflation and employment.
  They help contextualize the broader policy environment without indicating any specific future actions.

• Average Hourly Earnings m/m (Thu, Nov 20)
  Reported at 0.2%, below the expected 0.3%.
  This suggests wage growth is continuing but at a slightly slower pace, which can ease inflation pressures.

• Non-Farm Employment Change (Thu, Nov 20)
  Came in at +119K, well above the forecast of +53K, following a previous decline of –4K.
  This reflects a clear improvement in job creation compared to the prior month.

• Weekly Unemployment Claims (Thu, Nov 20)
  Measured at 220K, below the expected 227K and the previous 228K.
  This points to steady labor market conditions.

• Unemployment Rate (Thu, Nov 20)
  Stood at 4.4%, slightly above the forecast of 4.3%.
  The small increase suggests a minor change in overall labor market balance.

• U.S. Flash Manufacturing PMI (Fri, Nov 21)
  Recorded at 51.9, just under expectations (52.0) and below the previous reading (52.5).
  This indicates continued but slower expansion in manufacturing.

• U.S. Flash Services PMI (Fri, Nov 21)
  Came in at 55.0, above expectations (54.6) and the previous 54.8.
  This signals ongoing solid expansion in the services sector.

Summary:
Overall, this week’s data presents a balanced picture of the U.S. economy. Employment indicators show moderate strength, wage growth softened slightly, and business activity continues to expand—particularly in services. For portfolios with U.S. exposure, these updates help frame the broader market environment heading into the next period.

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Deep dive

Diversification and Asset Allocation: Building a Resilient Portfolio

Introduction

In investing, there’s an old adage: “Don’t put all your eggs in one basket.” This saying captures the essence of diversification – spreading your investments across different assets so no single holding can make or break your wealth. Diversification isn’t just a buzzword; it’s a proven way to reduce risk without necessarily sacrificing returns. In fact, how you divide your money among various asset classes (your asset allocation) is often more important to your long-term success than picking any one hot stock or fund. This deep dive will explore why mixing assets in a portfolio is so powerful. We’ll see how combining stocks and other investments can smooth out the ride for investors.

By the end of this read, you’ll understand how a well-thought-out asset allocation can be the key driver of your investment results, and why diversification is often called the investor’s best friend.

Diversification: Why Multiple Assets Matter
Think of your portfolio as a garden with many different plants. If one crop fails due to bad weather, the others can still thrive. Similarly, a multi-asset portfolio (one holding different types of investments like stocks, real estate, etc) ensures that if one investment is struggling, others may be doing well. The result is that your overall wealth doesn’t swing as wildly with every market storm. For example, consider stocks and Save assets – two asset classes. Stocks can offer high growth but are more volatile (their prices jump up and down). Save assets tend to be steadier, often even rising in value when stocks are falling due to investors seeking safety. If you hold both stocks and Save assets, a year of poor stock performance might be buffered by decent Save assets returns. This balance means fewer sleepless nights and a gentler experience through market ups and downs, as the assets can counteract each other’s moves. Diversification, in this way, is essentially a form of risk management – it aims to limit the damage any one investment can do to your portfolio. It’s important to note, diversification will not eliminate risk completely (you will still see your portfolio value go down sometimes), but it can substantially reduce the impact of any single asset’s downturn. A well-diversified portfolio is far less likely to suffer a catastrophic loss than a portfolio concentrated in one or two things.

Imperfect Correlation: When One Zigs, Another Zags
A crucial reason diversification works is a concept called correlation. Correlation in finance measures how similarly or differently two assets move in value. If two investments are highly correlated, they tend to rise and fall together. If they are uncorrelated or only weakly correlated, they often behave differently – when one zigs, the other zags (or at least moves less in sync). By combining assets that don’t move in lockstep, you create a smoother overall result. The less correlated your investments, the bigger the benefit of diversification. studies suggest that dividing your money between assets with low correlation may decrease risk while actually maintaining or even increasing your overall return. This sounds almost magical – how can adding a conservative asset actually boost returns? The answer lies in the way different assets’ ups and downs can balance each other out over time.