The economic cycle is a very important factor which influences investment decisions. The cycle can be broken down into four distinct phases: prosperity, recession, depression, and recovery. Each phase brings about its own set of economic forces which can affect an investor’s decision-making. During times of prosperity, consumer demand is high, unemployment levels are low, and the stock market is usually very strong. This is an ideal time for investments, as the market is often at a peak with great potential for growth. Investors should focus on investments that are likely to increase in value during a time of economic growth, including equities and mutual funds. The decline of an economic cycle usually begins with a recession. During a recession, consumer spending decreases, unemployment increases, and the stock market is generally weak or flat. During this phase, investors are best suited to focus on safer investments such as bonds, money market accounts, and cash. The third phase of ...