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The Economic Cycle, When to Buy Stocks - Part 2

The economy and stock market go through cycles of booms and busts as the economy grows over time. For part two of the "When to Buy Stocks," we are going to talk about the long term stock market cycle and how it can guide your investing to more profits.

It’s very important to understand approximately where the economy currently is on the economic cycle. economic cycle

Peak

When the market has reached its peak or is nearing the peak, its usually a good time to stop buying or to take some profits. I say take some profits because you don’t want to miss out on falsely identifying the top of the cycle.

Trough

When the market has hit the bottom (trough) or is recovering, its a good time to start adding to positions and making new investments.

Understanding this trend over the long term can really help you save money in a bear market and make more money in a bull market. Knowing where we are currently at in the economic cycle is hard to guess, but by looking at the past its easy to guess approximately where the stock market is currently on the graph above.

At the time of this post was written we are somewhere between the middle and end of the expansion cycle. It can be argued that we are still recovering but globally it appears we are in the prosperity range. This means now is a good time to hold on to your investments. We have been in this expansion cycle for about 4 years and we might still have room to run. But as some economic indicators are showing us, the economy has been slowing down. This could be signaling that the market is near the top.

Here are some other blogs about the economic cycle.

Be sure to add this blog to your favorites or your RSS reader to see the next post in the "When to Buy Stock" series. The next post will be on short term stock market cycles.



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