Investing Through Cycles
Understanding how various types of stocks, bonds, and other assets have historically performed at various points in the business cycle may help investors identify opportunities as well as risks. This business-cycle investing approach differs from both short- and long-term approaches because shifts from one phase of the business cycle to the next have historically taken place every few months or years on average. This blog will discuss how knowing the cycle may help investors evaluate and adjust their exposure to different types of investments, as the likelihood of a shift from one phase of the cycle to the next increases.
Historically, different investments have taken turns delivering the highest returns as the economy has moved from one stage of the cycle to the next. Due to structural shifts in the economy, technological innovation, regulatory changes, and other factors, no investment has behaved uniformly during every cycle. However, some types of stocks or bonds have consistently outperformed others and knowing which is which can help investors set realistic expectations for returns.