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Investment Strategies for the 4 Stages of the Economic Cycle

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My approach to investing is based on the economic cycle (see below). Our economy goes through different stages of the economic cycle, where different types of investments will do better or worse. At my firm, we adjust the general allocation of stocks, bonds and other investments based on where we are in the cycle and where we think we are going, as well as the underlying investments in sectors.

Our goal is to manage the portfolio to find the highest potential rate of return for the least amount of risk (also known as risk-adjusted returns), adding growth potential during growth periods and adding principal protection through the use of insurance products, in times of uncertainty.

Courtesy of Sean Burke

This graph above is a representation of the economy as we go through the four stages of the economic cycle. The part of the curve that’s above the baseline represents a period of economic expansion, and the part that’s below the line represents economic contraction.

We believe that we’re currently in the mid cycle, poised to continue growth due to the cash savings that Americans have been able to accrue over the pandemic. As they get to go back to eating out, traveling, shopping, etc. we could see a good portion of that cash go back into the economy. Another factor is the federal reserve monetary policy being favorable to stocks.

There are many risks that we are keeping our eye on, including inflation, taxes, government policy and spending, COVID-19 policies and more. As challenges arise, we asses and monitor them and make the appropriate changes to our investment........

© Kiplinger

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