Planning for the Fiscal Cliff

The fiscal cliff will likely be averted but not artfully so.  Even if it was brilliantly navigated, GDP will  suffer in the first and second quarters of 2013.  Meanwhile the life savings of millions of investors around the world are going to be impacted.  The prudent thing to do is to focus on what we can control: our attitude and our behavior.

We can control our attitude by limiting our exposure to the white noise broadcast by the news media.   Often we see two brilliant people espousing opposite ideas that does nothing to help a family make good financial decisions.   For example, “Raising taxes on the families making more than $250,000 per year is the answer to our spending problems!”  I happen to the believe the counter-argument that “Raising taxes when the economy is growing at less than 2% and unemployment is at 8% is a recipe for recession.”  But all this noise is detrimental to our peace of mind and negatively impacts our ability to make good decisions. We can’t control the outcome of that debate but we can control the amount of risk that we take.

We manage risk by choosing the appropriate asset allocation to accomplish our goals and then populating that allocation with the best components available.  Most Americans have the bulk of their liquid wealth invested in 401ks and IRA accounts.  The key to navigating the fiscal cliff is to choose the proper percentage to be invested in stocks and in bonds and to give it time to work. There are a lot of risks in the financial markets, particularly in bonds.

Many investors believe they are investing conservatively by purchasing bond mutual funds.  Investors often choose bond funds because they have a higher yield than their peers.  What they don’t understand is that the higher yield probably reflects more risk in the underlying securities owned by the fund.  This is the next iceberg lurking below the surface of the water that is going to capsize retirement portfolios in the years ahead.

Your situation is unique and you deserve better than a “one size fit’s all” strategy.  I’ve read countless articles on what investors should do and my advice is to get advice.  Please discuss your situation with a Certified Financial Planner that you trust and get a customized asset allocation.  To learn more visit my website or to find the appropriate advisor for your family.  The National Association of Personal Financial Advisors (NAPFA) is the country’s leading professional association of Fee-Only financial advisors—highly trained professionals who are committed to working in the best interests of those they serve.


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Filed under + Economics, Politics and Financial Planning, + Retirement, Thoughts on the Market

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