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Make Any Economic Cycle Work for You Thumbnail

Make Any Economic Cycle Work for You

Financial Planning Insights Investing Behavioral Finance Retirement Planning

As anyone who watches television news knows, the U.S. economy moves through periods of growth and decline.   These ongoing cycles present the astute investor opportunities.  However, it takes skill and experience to capture them.  Many individual investors do not possess these skills and should look for professional help.  By making small adjustments to the mix of investments in your portfolio you could likely improve performance regardless of where you are in the market cycle.

During these market cycles, certain investments will generally outperform others as economic conditions change.  These cycles may present opportunities for shrewd investors.  The key to capturing these opportunities is to know which asset types historically tend to shine under various economic conditions and then be willing to take action as directed by your investment plan.

To reach your long-term goals, investors should be constructing portfolios with a diversified mix of assets such as U.S. stocks and bonds, international stocks and bonds, commodities, and other tangible investments including real estate, gold, and oil, as well as hedge, private equity, and structured investments.  You should periodically rebalance your portfolio to stay within your original allocation.  

Investors can take this basic portfolio construction a step further utilizing a tactical approach in an attempt to capture incremental gains as market cycles change.  Always keep in mind that any of these strategies may not perform as expected and thus may not protect against an investment loss.

To take advantage of these tactical moves, investors should have some knowledge and experience in how economic cycles work and the various indicators that have historically signaled the end of one cycle and the beginning of another.  These signals include unemployment claims, consumer confidence,  interest rate movements,  new housing starts, and durable goods orders to name just a few.

Tactical allocation can potentially enhance performance without increasing risk during market cycles.   It is an approach that professional money managers have used and individual investors can take advantage of as well.  However, to apply these strategies to their best benefit, you will probably want professional advice in the areas of tracking economic cycles and the historic performance of various assets.  Keep in mind that all of your investment decisions should be in keeping with an investment plan that takes your goals, time horizon, tolerance for risk, and your need for liquidity into consideration.


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