Understanding market cycles for investment activity is no less important than knowing the laws of the changing seasons of the year for any person. Looking at the approaching winter, people do not fall into despair, thinking that spring will never come. Because they know for sure this period is strictly limited in time. In the same way, knowledge of market cycles allows an investor not to rush about in the event of a sudden decline in the value of his assets, pulling out his investment and putting it into another project. Loan App is always ready to balance your financial assets in anticipation of a turn in the financial situation for the better.
Long Term Investments and Turbulence in Financial Markets
Investors have short term and long term goals. The success or failure of the first ones is quite obvious due to the close time horizon. On the contrary, with long-term goals and investments, it is important not to go astray, succumbing to emotions and illusions in case of unforeseen events. When turbulence sets in, an investor has two main ways to respond to it:
● sell stocks or other assets that may depreciate
● continue to hold assets despite the risk of their depreciation
The first option seems more rational in a panic situation, but when the turbulence ends, the investor may realize that as a result of his hasty actions, he suffered losses or, at least, missed potential profits.
Business Cycles and Stock Markets
There are long and short economic cycles that realize themselves over a time period from just over 2 years to more than 10 years. Traders are well aware of this dynamic: markets can go up or down. So the economy sometimes expands and sometimes shrinks, leaving less room for secure and rational investment. Stock markets also fluctuate, but they anticipate economic cycles by an average of six months to a year.
What an Investor Should Do When Markets Change
● Firstly, the investor must be prepared for market fluctuations and, when developing investment strategies, he must hedge his underlying assets in advance
● Create a long-term plan that will specify the distribution of assets, their expected return, the forecast for the decline or cessation of returns on certain assets, and more
● Balance your investment portfolio so that stocks, cash assets, commodity assets are combined with each other in terms of potential profitability
● When the market cycle reaches its peak, investors become overwhelmed with enthusiasm. Under its influence, they buy too many shares, which begin to depreciate as soon as the top is passed and the market changes trend
● When the market falls, it is important to stay calm and be patient. During this period, many investors panic and cash out, thereby depriving themselves of the opportunity to profit from the growth in asset prices in the future
● However, once the bottom is reached, a bull market gradually begins to form. And if you have enough perseverance and patience, you will come out of this cycle as a winner. And if you have already sold all your assets at the time of the fall in their prices, this will be a good lesson to start learning the laws of market fluctuations
By understanding the essence of cycles, you will become immune to them. Because your endurance and patience will be enough to wait out periods of economic downturns. And during economic upswings, you will control your optimism so that it does not lead you into areas of potential instability, which are the first to show their financially unfavorable nature when the market cycle reverses.