Reflection No. 36

Happy Friday!

There’s been a lot happening in the stock market and broader economy lately, and it’s enough to make anyone take a second look at their portfolio.

This week, we’re diving into the importance of diversification—especially after the market’s recent “gift”—and what the downgrade in the U.S. credit rating could mean for your money.

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Three Quick Hits:

• Article: A Stock Market Gift

  The market took a dip—maybe even a nosedive—at the beginning of April as Liberation Day took effect. The market has now recovered those losses, so it may be time to reevaluate your diversification if you are sick of the roller coaster ride we’ve been on lately. If you’ve got time on your side, maybe rather than looking at board diversification, it makes sense to look at what you’re currently invested in and make sure you still believe in those companies and the potential growth they can provide over the long term.  

• Tip: Diversify your investments to match your risk tolerance and long-term goals. That might mean spreading your money across bonds, international equities, real estate, or a mix of large-, mid-, and small-cap stocks.

• Quote: “What’s comfortable is not the right way to invest. You must own things that you’re uncomfortable with. Otherwise you’re not really diversified.” - Peter Bernstein 

Two Questions:

• Would you be proud or worried if your money habits were passed down to your kids today?

• Which part of your financial life do you most want to improve, and what’s your first step?

REFLECTION No. 36: Understanding Moody’s Downgrade 

I - Issue: What does Moody’s cut of the U.S. credit rating mean? 

R - Rule: Moody’s is one of the three major credit rating agencies that assess the creditworthiness of governments and corporations. A lower credit rating signals higher risk to investors and can lead to higher borrowing costs for the borrowing entity.

A - Analysis: On May 16, Moody’s downgraded the U.S. credit rating from AAA to AA1, marking the first time since 1919 that the U.S. has not held a perfect rating from Moody’s. 

Moody’s cited persistent federal budget deficits and the rising cost of interest on the national debt as key reasons for the downgrade. It follows earlier actions by Fitch, which downgraded the U.S. in 2023, referencing repeated last-minute debt ceiling negotiations.

While the U.S. remains a global economic leader, economists warn that the downgrade could result in higher borrowing costs, as lenders may demand greater returns to offset perceived risk. This could increase the cost of everything from government bonds to mortgage rates.

C - Conclusion: Moody’s downgrade reflects growing concerns about U.S. fiscal discipline and completes a trio of credit rating cuts from all major agencies.