Investor Corner/The wider picture/Macro and Market Context
5.1.3 Market Cycles
Markets move through recurring phases of expansion, peak, contraction and trough. Nobody has been shown to consistently and reliably time these turning points in advance. Asset allocation and periodic rebalancing are the practical tools for managing this reality.
Why cycles are real but their timing is not reliably predictable
Economic and market cycles have recurred throughout history, and their broad existence is genuinely well documented across long periods. What has proven far less reliable is predicting exactly when any specific cycle will turn from one phase to the next, with even professional economists and fund managers frequently disagreeing about, and getting wrong, the specific timing of upcoming turning points.
Why trying to trade the cycle is genuinely difficult
Successfully trading a market cycle requires not just correctly identifying the current broad phase, but also correctly anticipating when it will actually turn, and then acting on that view before the shift becomes broadly obvious to the wider market and is largely already reflected in prices. This is closely related to the broader difficulty of market timing discussed elsewhere, applied specifically to full economic cycles.
The more reliable, practical response
Rather than attempting to actively trade the cycle, maintaining an appropriate long-term asset allocation and rebalancing periodically allows a portfolio to naturally adjust its relative exposure somewhat as different assets move through their respective cycles, without requiring accurate, forward-looking predictions about specific turning points.
How PriLytics helps. PriLytics shows your true asset allocation clearly, making periodic rebalancing straightforward regardless of exactly where in any given cycle the market currently sits. See your true asset allocation.