Sherri’s Sidebar

The Election and the "Fiscal Cliff"

The uncertainty of the election is over, but worries about the ability of Congress to compromise over budget reform remains. The issue before them is whether or not to let the Bush tax cuts expire at the end of this year. If they do let them expire, taxes will increase on ordinary income, capital gains taxes will go up, and dividends will be considered ordinary income. Additionally, the estate tax exclusion, currently at five million with a tax rate above that of 35%, will increase; the exclusion would go to one million and rates will increase to 55%.

Unrelated to the Bush tax cuts, a Medicare tax of 3.8% on investment income for higher tax payers is scheduled for next year, as is a payroll tax increase from 1.45 to 2.35. Clearly, increased taxes are on the table. Additionally, across the board spending cuts approximating 2.1 trillion dollars are scheduled to come in if a compromise does not occur. The Congressional Budget Office predicts that going over the cliff would put the economy into recession in the first half of 2013, if that were to occur.

If this lame duck Congress is not able to agree, it is possible the new Congress in 2013 could rectify that situation retroactively by revisiting the issues. This wouldn't be the most desirable outcome. At the moment, the markets are reacting as if some kind of compromise is likely. The S & P 500 is down approximately 4.5% since the election. It is possible that selling is taking place to lock in gains and/or losses for the year.

Uncertainty around these issues, coupled with Europe's recession and escalating tensions in the Middle East, are concerns as well and will present challenges to leaders around the globe. The S & P 500 remains positive year to date, however.

Balancing conservative investments that may help during times of market stress with opportunistic positions that have potential for longer term growth is one of the best time-tested approaches to managing through market volatility. It isn't possible to predict the future. Despite the difficult decade that we have endured, having a balanced, diversified portfolio, generally has been better than trying to time the market. We are hopeful that some certainty around the budget and taxes in a pro-growth compromise can be achieved. Either way, we will continue to evaluate and make adjustments that are prudent for your situation. Unless your circumstances have changed, keeping a long term view is important.

Our best wishes for a Healthy and Happy Holiday Season!

I recently returned from an enlightening trip to India. Despite all the challenges we have here in the U.S., we truly are blessed to be living in a place that has so much opportunity and abundance, I am truly thankful.


The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James. Stephens Wealth Mgt Group is independent of RJFS. Any information is not a complete summary of statement of all available data necessary for making an investment decision and does not constitute a recommendation.

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