Bulls n' Bears

Risks and Economic Business Cycle

An investor's fundamental aim is to gain maximum return out of his total investment. However there are many impediments that may act against his goal of attaining maximum level of profits. Investors would need to consider the risks due to economic business cycles when they invest in any platform.

In the economic business cycle there are mainly four periods that can be termed as boom period, recession, depression and the recovery periods. As the boom period indicates highest level of business activity and higher demand for products, it makes a very good environment for investors to reap abnormal profits.

However after a certain period of time, a slow down in economic activity will start keeping pace and reach the lowest level of depression. During depression period, investors tend to suffer loss and they will be reluctant to invest anymore in the market.

Due to the interference of market forces and Govenment, depression will gradually wipe out giving way for recovery of economic activities and the investors expectation will be at a higher level. At this point a lot of new investments can happen as the market is on the way to progress and the ultimate level will reach at the starting point of boom period.

These periods of economic cycle is very crucial for the investors to decide their investment portfolio. No investor want to incur loss from his investment. We know that there was great depression in 1930's and after that another depression period started from 2008 onwards.

From this, one thing is clear that the economic cycle won't change all on a sudden with low time periods. The distance between two stages in the business cycle will not be a short term one. All these nature of economic activities are paramount importance to an investor in order to avoid or at least reduce the risks due to economic business cycles.