What is a business cycle?
It’s the ups and downs of the entire economy's Real GDP as it follows its overall trend.
The overall trend is upwards
Note: Oddly enough the term business cycle does not apply to a business. Rather, it refers to the entire economy (keeping us all on our toes I guess).
As the US economy works its way upward it has its ups and down. The ups exceed the downs, and over time the economy (and the stock market) climb upwards.
This occurrence is typical of a good, and normal, economy. It represents that the US economy is healthy overall, so it grows and performs well (upward trend).
But the US economy also encounters challenges along the way (the downs markets and slowing or shrinking GDP periods).
Importantly, individuals, companies, organizations, and government responds to the declines in order to “fix” the economy by solving a present challenge.
The US has been very good at fixing its economy as it meets challenges, plus we have a huge collection of smart and hardworking businesses full of good people and resources to fix their business (their slice of the economic pie).
Economists measure business cycles
These macroeconomists measure many variables to paint a picture and understand the past, present, and future economy. An example of a variable that is measured is Unemployment. Another example of a variable that is measured is Real GDP. There are tons of variables measured. But these variables are measured at regular intervals (perhaps once per week, once per month, once per quarter, once per year, etc.) When you measure a variable at consistent intervals it’s called a time series.
When you look at the time series (collection of data for one variable taken at regular intervals), you can see trends. Real GDP, Prices, and Unemployment are three massively important trends for economists. When the Real GDP trend shows increases for two or more quarters (a quarter is a 3-month interval, or a quarter of a year) then the economy is in expansion. If that expansion lasts for a long, long time (years) it is considered a boom.
But when the Real GDP trend shows decreases for two (or more) quarters then the economy is in contraction. Historically, if the Real GDP is contracting then it was called a recession, but nowadays many economists look at more than just Real GDP before labeling the economy as being in a recession.
(They will look at income, unemployment/employment, etc for an overall feel before using the word recession.)
So expansion and contraction are not debatable: either your Real GDP continues to grow every quarter and you’re expanding (your economy), or your Real GDP continues to shrink every quarter and you’re contracting (your economy). Obviously, government is interested in having tools to end contraction, avoid recession, and restore expansion/growth — more on that later.
The NBER (National Bureau of Economic Research) can officially declare a recession, but as an improving investor gathering your data do you want to just move with the herd and wait for the NBER to declare a recession or end of a recession? Or do you want to be one step in front of it? And even if you do wait, just understanding that an expansion or a contraction is coming can keep you emotionally calm and rational (buying low and selling high takes emotional control and sound reasoning).
I saw that coming from a mile away” is a powerful feeling as an investor. It takes time to develop that — and you will still get surprised from time to time too. But since you’re winning more than you’re losing as you improve, you deal with it better.
Note: The NBER is typically full of Nobel Laureates and past members of the President’s Council of Economic Advisors. But, you know, good investors still ensure what they are reading and hearing makes sense to them.
Many economic factors correlate
For instance, Real GDP and Unemployment rates historically correlate (move together) very, very well. In other words, when Real GDP is going up then Unemployment is going down. When things move together but go in opposite directions that is called “an inverse relationship” or a “negative correlation.” They go in opposite directions, but at the same time; this can also be called countercyclical. And a direct relationship is when two things move in the same direction at the same time; this can also be called positive correlation, procyclical, or just cyclical.
An investor could look at it the opposite way too: when Unemployment is going down then Real GDP is going up.
The NBER looks at this closely when deciding if we are in a recession. If Real GDP is declining, but Unemployment is not changing then they may not call it a recession.
There are indeed times when things that are highly correlated (like Real GDP and Unemployment) do not move “correctly.” This is always odd for economists and investors, and you need to pursue the reason (or at least a theory) why.
Remember, the economy is very dynamic and complex, so there are many things that are usually true but not always true. Economists are just gathering information and painting pictures in order to understand the economy. Not every painting from economists is photo-realistic.
There are in-between periods too, such as 2024, when the painting looks more like a Monet. You can tell what it is, but there are not a lot of clean edges. What you don’t want is a Jackson Pollock painting (economically speaking), such as the lead-up to GFC (Great Financial Crisis of 2007-2008) that wasn’t understood and turned into a crash.
As an investor, you want procyclical investments when the economy is good (restaurants, airlines, auto-makers) and countercyclical investments (discount retail and alcohol) when the economy is bad.
So before the NBER declares a recession they look for: a decline in total GDP, a decline in income, a decline in employment, and a decline in trade. So they want to see that the economy is bad, or down in many regards — and we would tend to agree with this. The term recession should be reserved for when many bad things are happening within the economy. Otherwise, people might think every bit of bad news is a recession, which reduces their participation in the economy (less iPhones, restaurants, and Disney+) which then would lead to more problems — because they got spooked.
Note: What works really well is to have a teammate that can understand, stay the course, and make some basic pivots along the way. If you can’t do it yourself, we recommend Arena Investor investment management services.
You can be in a growth recession too
What does that mean? It means you were growing at 3% but are now growing at 2.5%. See how you are growing slower now? The growth (growth rate) contracted. But you are still growing. It is like the kid in middle school who hits a growth spurt and grows 12″ in a year versus the kid who grows 6″ in a year. Don’t worry, they are both healthy.
Look at the data for yourself, hear what is actually happening, and don’t just listen to panicky news. Growth rate contractions happen. Should we look at why? Yes. Should you panic? No. In fact, you should never panic.
The moral of the story
Continue to learn so you can decide for yourself what is good and bad. (Hint: there are opportunities in every market.)
What is an economic depression?
So we know what contraction is, and we know a recession is more than a Real GDP contraction, but what is a depression? Simply put, an economic depression is when you are in a recession for a long time (years and years).
Since The Great Depression economists have been steadfastly dedicated to preventing another depression! Heck, we already covered Keynes and his effort to develop macroeconomics because the world was suffering through The Great Depression. (There are other great contributions from others too in economics.)
Economies have momentum and inertia
The momentum is how much change is happening (a lot of upward or downward change in the Real GDP for instance) and inertia is the economy’s resistance to change. This does not mean that when government takes action it is useless; instead, it means that a train slows down slowly. You won’t get a barge to turn on a dime. You can put rudder inputs in, and a turn will start, but it might not respond like a fifth generation military fighter jet.
You may think you want quick changes, but you don’t. What you want is small inputs that are on-time from the government so you don’t get a runaway train in the first place — so you don’t need to do a 180 degree turn with an aircraft carrier — but instead a little left or a little right to stay on target.
As instructor pilots say, “small corrections sooner.” The US government has been pretty good at this compared to the rest of the world, especially when you consider how big, complex, and dynamic our economy is. But let’s stay vigilant.
Note: Economic inertia that is quite resistant to change is called persistence.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
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Understanding Financial Planning
In your 20s, 30s, and 40s, the concept of financial planning might seem overwhelming, but it’s one of the most important steps you can take to secure your future. Whether you’re just starting out in your career, building a family, or planning for significant life milestones, having a solid financial plan is essential. Arena Investor is here to help you navigate the complexities of financial planning, guiding you toward a future of financial stability, wealth creation, and the ability to leave a lasting legacy.
What Is Financial Planning?
Financial planning is a comprehensive process that involves setting financial goals, developing strategies to achieve them, and continuously monitoring your progress. It’s more than just budgeting or saving; it’s about understanding how every aspect of your financial life—income, expenses, investments, and more—works together to create a secure future.
For those in their 20s, 30s, and 40s, this process is especially critical. The financial decisions you make now will have long-lasting effects on your wealth and quality of life in the future. Arena Investor provides personalized financial planning services designed to meet the unique needs of young professionals, helping you navigate each step of your financial journey.
The Arena Investor Roadmap to Financial Success
Arena Investor’s approach to financial planning is structured around three key phases that are particularly relevant to people in their 20s, 30s, and 40s: paying off debt, saving for life events, and focusing on wealth creation and legacy building. Here’s how we can guide you through each step.
1. Paying Off Debt
Debt can be a significant obstacle to financial freedom, especially for young adults who may be carrying student loans, credit card balances, or car payments. Arena Investor understands that paying off debt is the first critical step toward achieving financial stability and setting the stage for future wealth creation.
Our financial planning process begins with a thorough assessment of your current debt situation. We work with you to develop a debt repayment strategy that fits your budget and lifestyle. This might include prioritizing high-interest debt, consolidating loans, or setting up automatic payments to ensure you stay on track. By helping you manage, reduce, and ultimately pay off your debt, Arena Investor positions you for success as you move forward in your financial journey – a journey you can actually enjoy.
2. Saving for Life Events
As you progress through your 20s, 30s, and 40s, you’ll likely encounter several significant life events—buying a home, getting married, or starting a family. Each of these milestones requires careful financial planning and saving. Arena Investor helps you prepare for these events, ensuring that you have the financial resources needed to achieve your goals without derailing your long-term financial plan.
We start by identifying your short- and medium-term financial goals and determining how much you need to save to meet them. For example, if you’re planning to buy a home in the next few years, we’ll work with you to create a savings plan that covers your down payment, closing costs, and other expenses. Similarly, if you’re planning for marriage or expecting a child, Arena Investor will help you budget for those life changes while ensuring that you continue to build wealth for the future.
3. Investing for Wealth Creation and Legacy Building
Once your debt is under control and you’ve started saving for life events, it’s time to emphasize wealth creation and legacy building. This is where the guidance of Arena Investor truly shines. We help you develop and implement investment strategies that align with your long-term goals, whether that’s growing your wealth for retirement, funding your children’s education, or leaving a lasting legacy for your loved ones or favorite causes.
Arena Investor offers personalized investment management services designed to help you build and preserve wealth over time. We take into account your risk tolerance, time horizon, and financial goals to create a diversified portfolio that balances growth with stability. For example, if you’re in your 30s, we might recommend a mix of stocks, ETFs, and perhaps crypto if it’s suitable that provides both growth potential and protection against market volatility. As you approach retirement, we’ll adjust your portfolio to reduce risk and focus on generating income.
In addition to investment management, Arena Investor helps you plan for your legacy. Whether you want to leave an inheritance for your children or grandchildren, make charitable donations, or establish a trust, we will work with you to create a legacy plan that reflects your values and wishes. We also consider the tax implications of your investments and legacy plan, helping you maximize the benefits for yourself and your heirs.
Why Financial Planning with Arena Investor Is Worth It
Working with Arena Investor offers numerous advantages for young professionals. Our financial planners and investment managers provide the expertise and guidance you need to navigate the complexities of personal finance, from managing debt to creating a legacy. Here’s why partnering with Arena Investor is a smart move for your financial future:
- Personalized Guidance: Arena Investor tailors financial plans to your unique circumstances, ensuring that your financial goals are achievable and aligned with your lifestyle.
- Strategic Planning: We help you prioritize and manage your financial goals, from paying off debt to saving for life events and building wealth. Our strategic approach ensures that you’re on the right path to financial security.
- Investment Expertise: Arena Investor’s investment management services are designed to optimize your portfolio for growth, stability, and tax efficiency. We help you make informed decisions that contribute to long-term wealth creation.
- Legacy Building: We assist you in planning for the future, whether that means leaving a financial legacy for your family or supporting causes you care about. Arena Investor helps you create a lasting impact through thoughtful financial planning.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
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Understanding Insurance Rate
The concept of "Insurance Rate" is vital in personal finance, serving as a gauge for the adequacy of your insurance coverage relative to your unique financial situation. This includes factors like your spending habits, income, and net worth. Here Arena Investor breaks down how each of these factors influences your insurance needs and offers a strategic approach to managing your Insurance Rate effectively.
What is Insurance Rate?
Insurance Rate is a measure that compares the amount of insurance coverage you have to the amount you actually need, based on key financial factors such as your spending, income, and net worth. Understanding and optimizing your Insurance Rate ensures that you are neither underinsured nor overpaying for unnecessary coverage.
Spending: Aligning Coverage with Lifestyle Costs
1. Understanding Your Spending: Your monthly and annual spending patterns play a crucial role in determining how much insurance you need. High expenditures might necessitate greater coverage to maintain your lifestyle in case of disruptions like illness or disability.
2. Coverage Considerations:
- Health Insurance: Ensure your health insurance adequately covers your typical medical expenses. If you frequently visit medical professionals or require specialized medications, consider plans with broader coverage or lower deductibles.
- Disability Insurance: Particularly important for those with high monthly spending, this insurance replaces a portion of your income if you're unable to work due to injury or illness.
How Arena Investor Can Help Analyze Your Spending versus Insurance
Your advisor can review your spending habits and current insurance policies that protect against potential financial strains, ensuring your coverage matches your lifestyle costs.
Income: Securing Your Earnings
1. Analyzing Your Income Sources: Your total income, including salary, bonuses, and any passive income, directly impacts your Insurance Rate. Higher earnings may require more extensive coverage to fully protect your standard of living.
2. Coverage Considerations:
- Life Insurance: Essential for individuals with dependents or significant debts, life insurance should be sized to replace your income in the event of your death, providing financial security for your beneficiaries.
- Loss of Income Insurance: This can supplement disability insurance by covering additional aspects of income loss due to illness or injury.
How Arena Investor Can Help Analyze Your Income versus Insurance
Your advisor can assess your income and income protection insurances based on your earnings and future income potential, ensuring your family’s financial stability.
Net Worth: Protecting Your Assets
1. Evaluating Your Net Worth: Your total net worth — which includes assets like homes, cars, investments, and savings — necessitates adequate insurance coverage to protect against loss, liability, or significant devaluation.
2. Coverage Considerations:
- Property and Casualty Insurance: Adequate coverage for real estate and personal property is crucial, especially if your net worth is largely tied to these assets.
- Umbrella Insurance: Offers additional liability protection that extends beyond the limits of regular policies, which is critical for high-net-worth individuals.
How Arena Investor Can Help Analyze Your Net Worth versus Insurance
Your advisor can assess your current net worth, projected net worth growth, and asset portfolio and discuss insurance, so you can get comprehensive protection of your net worth against unforeseen events.
All In All
Your Insurance Rate is a dynamic indicator of how well your insurance coverage aligns with your financial profile — your spending, income, and net worth. With the guidance of an Arena Investor Advisor, you can achieve an optimal Insurance Rate, balancing cost-efficiency with proper protection. This strategic approach not only secures your financial assets but also provides peace of mind, knowing that you and your family are well-protected no matter what life brings.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
What Is Investment-Savings?
In today's economic landscape, finding effective ways to save for future expenses—be it for a new car, a down payment, wedding, or a new child—is more crucial than ever.
Traditionally, people have turned to savings accounts for such goals, but with interest rates often languishing below inflation rates, the real value of these savings can diminish over time. This is where the concept of "Investment-Savings" comes into play, offering a potentially more lucrative approach to managing your money with the help of financial advisors.
Understanding Investment-Savings
Investment-Savings involves using investment accounts, rather than traditional savings accounts, to accumulate funds for upcoming life expenses. The idea is to blend the growth potential of investing with the security and accessibility of savings. This strategy can be particularly advantageous because investment accounts typically offer better returns compared to traditional savings accounts, making your money work harder for you.
How Investment-Savings Works
1. Setting Clear Goals: The first step in an Investment-Savings strategy is to clearly define your financial goals. Regardless of what the goal is, understanding how much you will need, and when you will need it, will be important factors in how you should invest.
2. Choosing the Right Investments: Based on your goals and the time horizon for them (how soon you need the money), your Arena Investor Advisor can help select suitable investments. If your goal is short-term, conservative investments like bonds or certificates of deposit (CDs) might be recommended. These are lower in risk compared to stocks and can be timed to mature when you need the money.
3. Understanding Liquidity: Liquidity refers to how quickly and easily an investment can be converted into cash without significant loss of value. For Investment-Savings purposes, maintaining a certain level of liquidity is crucial, especially if you foresee needing to access your funds quickly.
4. Risk Management: While investing generally offers higher returns, it also comes with risks. Your Arena Investor Advisor will work to balance your portfolio in a way that aims to protect your principal—the initial amount invested—while still aiming for growth. This might involve diversifying your investments across different asset classes or using more sophisticated financial strategies like dollar-cost averaging. Furthermore, exiting the positions and returning to cash can be an important service your Arena Investor Advisor can provide, so you don’t have to worry about a sudden market downturn.
Advantages of Investment-Savings
- Higher Potential Returns: Unlike traditional savings accounts, which offer fixed and often lower interest rates, investment accounts have the potential to grow at a faster pace through compounded returns.
- Flexibility: Investment-Savings accounts typically offer more flexibility in terms of choosing a wide range of investment options based on your risk tolerance and time horizon.
Things to Consider
- Market Volatility: Investment values can fluctuate, meaning your account balance might go up or down based on market conditions. It’s important to be prepared for this aspect of investing. But remember you have an Arena Investor Advisor on-the-job, so you can actually enjoy the journey!
Getting Started with an Arena Investor Advisor
Navigating the array of investment options and strategies can be daunting without professional guidance. An Arena Investor Advisor not only helps you to define clear, achievable goals but also crafts a personalized investment plan tailored to your financial situation and life goals. They can educate you on the complexities of the market, help you manage risks, and adjust your strategy in response to changes in your life or the economy.
All In All
For anyone new to investing, the concept of Investment-Savings represents a proactive approach to financial planning that goes beyond traditional saving. By investing wisely, with the guidance of a skilled Arena Investor Advisor, you can potentially meet and even exceed your financial goals, or achieve them sooner, thus securing your savings for the upcoming life event.
This method blends the best of both worlds—growth potential and relative safety—making it a smart choice for anyone looking to make the most of their hard-earned money.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
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