At White House Financial we pride ourselves on being unique
and different and hence we were going to attempt to NOT have any commentary on
the “Fiscal Cliff”, however, prudence won out and we just wanted to make sure
all of our friends and clients knew where we stand on this subject. So here it is!! Hot off the presses!
For those of you who have been traveling far away from any type of
“civilization” the “Fiscal Cliff” is a package of significant tax hikes and spending cuts scheduled to take
effect in 2013.
Prior legislative compromises
over U.S. fiscal policy have set the stage for automatic spending cuts and tax hikes. The fiscal cliff refers to:
1.)
Sun-setting of
Bush-era tax rates,
2.)
Expiration of Obama-era stimulus measures, and Implementation of across-the-board spending cuts.
The timing and magnitude of any resulting shocks are subject to debate, but the near-term implications are clearly
negative and quite capable of tipping the U.S. economy into recession.
While 2012 was a major election year, nothing really changed. President Obama won re-election and, although 86 lawmakers will not be returning to office, the makeup of the Senate and House are nearly identical in terms of party affiliation. We see difficult negotiations and more political gridlock ahead of the fiscal-cliff deadline. We still believe there’s a greater likelihood of some kind of resolution to the fiscal cliff, however temporary. But there is enough uncertainty at this point to ask the question, “What happens if we do take the dive?”
For financial
advisors like us, the challenge with
an
event like the fiscal cliff is that you don’t know whether or
not it will happen
until after
the
fact.
Positioning
a portfolio for an event that never transpires can have as
detrimental a result in terms of performance
and
trading costs
as the actual event
itself. Despite
this, the
concerns about the fiscal cliff are already having an
impact. Government spending in the fourth quarter set new records as purchases
have been pulled forward
(Source: SEI Investments). Businesses
have held off on hiring and purchasing
decisions as they wait for clarity. Financial
markets are already reacting.
Investors
who have a primary objective of avoiding short-term volatility
should carefully
consider the portion of their
portfolios invested
in stocks.
However,
we believe that short-term turmoil created
by concern over
the fiscal cliff
underscores the importance of goals-
based investing. In our view, goals-based investing can
be a
powerful tool to help steer clients against market fear and uncertainty by better managing human
preferences, biases and behaviors that can undermine
their financial success. Goals-based investing
can
help clients invest according to their unique needs, desires
and
time horizons in a way that helps them look beyond
intermittent market volatility.
If the fiscal cliff is avoided, fundamentals are still good and equity valuations reasonable. The U.S. economy is in pretty good shape. If markets fall sharply or the cliff is resolved in a surprisingly favorable way, we would take a bullish outlook. The 2011 debt-ceiling fiasco may be
instructive. There were several negative surprises and
markets
fell apart for a time. A rerun of this is
possible.
We are sympathetic to the view that emerging markets
and
Europe offer better relative value than U.S. equity markets. But Europe is cheap for good reason.
So what should you do? First, we never
advocate ever changing your long term investment strategy based on the tax
code. Your investment strategy should be managed for
tax efficiency on a regular basis and should also be sufficiently diverse and
flexible to weather different tax environments (please note that diversification is a risk management strategy and does
not guarantee against investment losses).
Second, leave worrying about the fiscal cliff and the effect on your
investments, the economy and your financial health to us and ENJOY THE HOLIDAYS
WITH YOUR LOVED ONES!!!
HAPPY HOLIDAYS FROM ALL OF US AT WHITE
HOUSE FINANCIAL!!!
It is going to be an
interesting end of
the
year!
White House Financial & Settlement Consulting helps families live easier and less stressful lives through the proper management of their financial resources. We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs! Please visit our web site at www.whitehousellc.com for more information!
Securities offered through Sigma Financial Corporation. Member FINRA / SIPC
Fee-based investment advisory services offered through Sigma Planning Corporation, a registered investment advisor
The information set forth herein was obtained from sources which we believe reliable, but we do not guarantee its accuracy. In addition, past performance is no guarantee of future results and we do not provide legal or tax advice.
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