Middaugh: Should you prepare for fiscal cliff?
As an investor, you can sometimes feel you’re at the mercy of forces beyond your control. This may be especially true today, when the entire country appears to be on edge about the approaching fiscal cliff. What can you do in the face of such a dire prediction?
First of all, you’ll need to understand what initially led the Federal Reserve to issue the fiscal cliff warning. Here’s the story: Some $1.2 trillion in spending cuts are scheduled to begin in 2013, while, simultaneously, the Bush-era tax cuts – including the reduction in capital gains and dividend taxes – are set to expire. This combination of spending cuts and higher taxes could take some $600 billion out of the economy, leading to a possible recession – and maybe something much worse, at least in the eyes of the Fed.
Still, there’s no need for panic. Despite its political infighting, Congress is likely to reduce the “cliff” to a smaller bump. But as an investor, you may need to be prepared for two significant events: market volatility, at least in the short term, and higher taxes, probably for the foreseeable future.