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Learn how to ride the ups and downs of market cycles
Understanding market cycles is quite like having a map for your investment journey. It is what powers every boom, bust, and bounce in the equities market.
What is a market cycle?
Market cycles are a kind of recurring pattern observable in most financial markets around the world. It represents the nature of assets where their prices rise, peak, decline, and finally recover, only to repeat the process again.
Such cycles influence the prices of various assets, including shares, bonds, property, and almost every kind of investment. Although recognising the trends and triggers can help limit your risks and grow your rewards in the long run, these cycles don't really adhere to any given timeline.
The four phases of a market cycle
- Peak: Asset prices are at their highest, investor confidence is likely to be sky-high, and everyone wants in.
- Downturn: This is when there is a sudden rise in the market volatility, and the asset prices fall due to negative news or a poor earnings report.
- Trough: Markets hit their lowest point, and investments may seem too risky. But asset prices are at bargain levels, with potential for high growth.
- Recovery/Expansion: Smart investors spot opportunities during this period and invest at lower prices to ride the upswing as markets begin to improve.
Conclusion
When you chase returns at the peak, this may lead you to buy in at high prices and lose out during the slump. On the other hand, if you invest at a time when everyone else is fearful, such as during a market downturn, could help you capture the fattest rewards.
Timing isn’t everything, but awareness about market swings and market cycles is always a strategic advantage. So, stay informed, keep learning, and let market cycles work for, and not against, you.
Disclaimer: This article is for information purposes only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
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