Smart investors know that all investments run in cycles. Because of this, market cycles are one of the most important aspects of investing to learn and understand.
With a knowledge of market cycles you’ll be able to put your money to work in markets that are moving up in price and avoid those declining in price.
The “big picture” is vitally important to your success as an investor. It’s easy to get caught up with day-to-day investing decisions such as which stocks to buy or the price of gold or silver.
But as you’ll soon see, stepping back to view a larger picture of investing is key if you want to make good long-term investing decisions.
All markets move in cycles. The stock market has its day in the sun, then real estate makes its big move, then bonds, then gold and silver, then back to stocks, etc. These markets can move individually or in groups.
These cycles are driven by local, national, and global economic and geopolitical events (as well as investor sentiment), and they repeat over and over.
How investors react to what’s going on in the world (specifically, whether they become optimistic or pessimistic) determines if a market goes up or goes down.
This is very important to understand. It’s how investors view changes to market conditions that influences how they react – that is, if they buy or sell in the market.
Below is a chart of the market cycles for the last 40 years: To understand the chart, know that:
A bull market is a market that is rising in price over time
A bear market is a market that is falling in price over time (technically, down 20% from its peak).
|YEARS||BULL MARKET||BEAR MARKET|
|1974-1980||Gold & Silver||Stocks, Real Estate|
|1982-2000||Stocks||Gold & Silver|
|2000-2006||Gold & Silver, Real Estate||Stocks|
|2006-2009||Gold & Silver||Stocks, Real Estate|
|2009-2015||Stocks, Real Estate||Gold & Silver|
There is always a bull market cycle going on in one or more markets at any given time, and a bear market cycle in one or more markets at any given time.
Stocks and bonds tend to rise in 20-year cycles, with periodic bear market corrections that usually last 3-9 months.
Real estate and the precious metals tend to move in 10-year cycles.
And every 5 years or so there is some calamity that affects all the markets, but only for a short time.
We are currently in a bull market in stocks and real estate. This is where you should be putting your money.
Note that we are six years into this current bull market in stocks, but the market has not had a significant correction of more than 10% since 2009. We are overdue for a correction, so caution is warranted in diving full blast into stocks at this time.
We are four years into the new real estate bull market. In my opinion, real estate currently provides the best investment value in any market. Prices are still low in many parts of the country, and great deals on foreclosures, REOs, and short sales are still available.
The best investors are like surfers; they ride these cycles like waves, jumping in when a wave is forming, and getting off when the wave is ending. Then they are back to waiting for the next wave.
Huge fortunes come to those who can catch these long-term waves early and ride them. How do they do it? They use the following market cycle “secret”:
A market that ends in a bubble, whether in stocks, bonds, real estate, or gold, is usually followed by a strong bear market. And this bear market usually coincides with the emergence of a new bull market in some other market.
For example, gold and silver took off to new all-time highs when stocks and real estate went into a bear market from 2006-2009. Once stocks and real estate began their new bull markets (2009 for stocks, 2011 for real estate), gold and silver soon topped out and entered their current bear market phase.
One of the effects of a bear market is that financial assets transfer from weak hands to strong hands. In other words, the rich usually get richer, and the poor get poorer. Why?
The reason is that the rich understand market cycles. They have the financial education and knowledge to sell at the top and raise cash. They have the financial strength to ride out the storm during a correction or a bear market, and then are able to purchase assets like stock, real estate, and gold and silver at low giveaway prices at the bottom of a bear market.
Who usually are the ones selling at the bottom? The uninformed, uneducated small investor.
Decide which side you want to be on – the side of the rich, or the side of the poor.
Make sure you continue to learn all that you can about investing. Financial education is power! And potentially very profitable!!
Investing really isn’t that hard; it just knowing what to do, how to do it, and when to do it in a step-by-step manner.
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