Let's talk about most people's favorite phase of the business cycle: expansion!

One way people track the state of the economy is by looking at Gross Domestic Product (GDP), which measures the total value of goods and services produced during a period of time.

You can tell the economy is in an expansion phase if GDP is growing, unemployment is low, consumer spending is increasing and companies are reporting strong growth and profits 💰

See if you can tell how these factors are related: as companies grow, they can hire more people, so people have more money to buy stuff, which helps companies grow more, and so on!

So what does this mean for you as an investor? 🤔

Well, an expansion phase is generally a good time to invest more heavily in stocks! 📈

As businesses grow and become more profitable, their stock prices tend to rise 🌱

This means that if you own stocks during an expansion, the value of your portfolio will likely grow too! 🤑

Some sectors that often perform especially well during expansions are consumer discretionary – non-essential goods & services like luxury brands or travel – and technology!

For example, during the expansion phase from 2009 to 2020, consumer discretionary stocks grew over 580% and tech stocks soared more than 700%! 🤯

Of course, it's important to diversify your portfolio even during an expansion 🌿

But tilting your investments more towards stocks, especially in strong sectors, can help you potentially benefit from a thriving economy 💰

However, all good things must come to an end 😔

Next, let’s learn about navigating the peak phase of a business cycle.

Test your knowledge

During an expansion phase, businesses are:

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GDP measures:

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During an expansion phase, GDP:

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In an expansion phase, consumer spending is usually:

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Diversifying your portfolio is:

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What's next?

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