The Fiscal Cliff And Your Investments

Posted on: 12:50 pm, November 14, 2012, by

(KTVI) – Some Democrats are pushing an unorthodox idea for coping with the “fiscal cliff.” They say Congress should let the steep tax hikes and spending cuts take effect in the new year. Then Republicans would be forced to bargain with a weaker hand.

Republicans oppose increases in tax rates for everyone, including the rich.

Nearly everyone’s tax rate will rise if Congress and the White House don’t enact an alternative plan by year’s end.

We continue our discussion on what the “Fiscal Cliff” means for you. Should you do anything to protect your investments?

Bob Wamhoff from Wamhoff Financial Planning & Accounting shared his thoughts on this political football that will turn into an economic football.

Why the Fiscal Cliff will impact the market:

• The stock market typically does not respond favorably to tax increases

• The best environment for the market is one of consistency and little change in terms of legislation. This creates stability. (Example: the market stays relatively stable during the summer months when Congress is on break because it knows no legislation is coming down during that time.)

• Until the Fiscal Cliff issue is resolved, the market will continue to be unstable.

Chances are high you`ll be impacted even if you don`t have money in the market:

• When the ‘Bush Tax Cuts’ expire, everyone`s taxes will go up. Even if you have paid nothing in the past, you may owe once the cuts expire.

• Social Security and other government programs may be jeopardized if the market goes down and interest rates go up. The Social Security system needs strength in the market to ensure it`s there for the long haul.

What happens between now and December 31, and beyond:

• Obama has called for negotiations to begin this week, yet the sticking points between Democrats and Republicans continues to be extending the Bush Tax Cuts for those who make over $250,000 a year.

• If there is a six month extension, the market will be at ease for a few months. As the deadline looms, it will cause uncertainty in the market again, likely about 2 months prior.