Your understanding of the market is a solid foundation for a sturdy, adaptable investment strategy. The market moves in cycles, and understanding where we’re at in the cycle matters. Equity markets and economies cycle above and below relatively predictable long-term growth trends.
Investment conditions are best at the market bottoms and worst at the market tops. If deciding on your own or working with a wealth advisor, ask, are we above the long-term growth trend or below it? How much are we paying for the assets we are buying? Valuation levels tell us a great deal about coming returns three, five, seven, ten, and twelve years from now. The Fed matters. Fiscal policy matters. The magnitude of debt matters. High levels of debt impede growth. Where are we in the debt cycle? Where are interest rates? How do they compare to others around the globe? Where are we in the business cycle? Recessions matter. What are recession-watch indicators signaling? Demographics matter. All of this can inform and shape your investment positioning. All of this matters.
Identifying these meaningful indicators is just the starting point. Learning how to respond to those indicators and having the discipline to stay true to your process while the herd scrambles to react is what will make all the difference for you and your money.
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