The Pros And Cons Of Economic Recessions

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While it would be Utopian to have the economy grow at a stable rate, economic recessions are a fact of life and are as unavoidable as the setting of the sun. The economy has a cycle that involves both periods of growth and expansion, and periods of decline and recession.

For investors, it 's often the recessionary cycle that causes the most concern. In this article, we will look at how to properly invest as the economy moves through this phase.

Tutorial: Economics Basics

What Is a Recession?
A recession can be defined as an extended period of significant decline in economic activity including negative gross domestic product (GDP) growth, faltering confidence on the part of consumers and businesses, weakening employment, falling real incomes, and weakening sales and production. This is not exactly the environment that would lead to higher stock prices or a sunny outlook on stocks.

Other aspects of recessionary environments as they relate to investments include a heightened risk aversion on the part of investors and a subsequent flight to safety. However, on the bright side, recessions do eventually lead to recoveries and follow a relatively predictable pattern of behavior along the way. (To read more about this, check out Recession: What Does It Mean To Investors?)

Keep an Eye on the Horizon
The real key to investing before, during and after a recession is to keep an eye on the big picture, as opposed to trying to time your way in and out of various market sectors,

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