6 Ways To Help Clients Avoid the Fiscal Cliff
November 16, 2012 1:01 PM
6 Ways To Help Clients Avoid the Fiscal Cliff
These days, it seems like all the media can talk about is whether or not Republicans and Democrats in Washington can come to an agreement over the so-called fiscal cliff. But what exactly is it?
The term refers to tax increases and government spending cuts of up to $500 billion, set to roll in starting January 2013. Specifically, Bush-era tax rate reductions are set expire, average worker take-home pay will most likely also be affected, and about 28 million taxpayers in the middle to upper tax income bracket would have to pay an alternative minimum tax.
In terms of government spending, $26 billion would be cut from the emergency unemployment-compensation program, $11 billion would be cut from Medicare payments to doctors, and a $65 billion cut across the board for most federal programs.
With this in mind, what can advisors do to protect clients in these next uncertain weeks and months?
Here are 6 ways advisors can help their clients avoid the looming fiscal cliff.
The term refers to tax increases and government spending cuts of up to $500 billion, set to roll in starting January 2013. Specifically, Bush-era tax rate reductions are set expire, average worker take-home pay will most likely also be affected, and about 28 million taxpayers in the middle to upper tax income bracket would have to pay an alternative minimum tax.
In terms of government spending, $26 billion would be cut from the emergency unemployment-compensation program, $11 billion would be cut from Medicare payments to doctors, and a $65 billion cut across the board for most federal programs.
With this in mind, what can advisors do to protect clients in these next uncertain weeks and months?
Here are 6 ways advisors can help their clients avoid the looming fiscal cliff.
1. Be Prepared for a Period of Higher Volatility
Whether or not Washington comes to an agreement over the fiscal cliff issue, expect greater uncertainty in the markets. As citizens of a global economy, the fiscal cliff does have its ramifications, but so do other issues like the contraction of the Euro-zone and slowing growth in China.
2. Reduce the Amount of Risk in Portfolios
With market sentiment tilted towards the negative, some pundits argue that now is a great time to buy. However, do remember that while rewards may be alluring, a hard landing is also very likely. Being conservative and prudent may be a good option in the current environment.
3. Implement staged buying When Markets are Down and Present Opportunities
Just because market sentiment is weak does not mean that you should stop buying altogether. Instead, keep an eye out for opportunities that may be ripe for your clients.
4. Leverage Cash Flow
Try to capture a large share of cash flow by investing in dividend-paying stocks (especially those like technology companies, industrials and consumer cyclicals -that are in a position to raise dividends)
5. Consider Dollar-Cost Averaging
The theory behind it is that more shares would be purchased when prices are low, lowering the total average cost per share of the investment. In the long term, this could provide helpful to client assets.
6. Have Enough Liquid Assets
In the case of investors with smaller portfolios, make sure clients have enough liquid assets to be able to get through the next 18 months without being forced to sell when markets are down just to meet living expenses.
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