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Features : Editorial Last Updated: Nov 14, 2012 - 9:27:34 AM


Standing on the edge of a fiscal cliff
By Stephanie Mackara
Nov 14, 2012 - 9:25:33 AM

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Though voter turnout did not reach the record breaking levels of 2008, if you voted at the Daniel Island School in Berkeley County you saw firsthand how serious our community takes its civic duty. The wait was well over an hour for some, and we were all happy to be there.
If you haven’t heard, President Obama is back in the White House and the control of Congress is divided between two parties---sound familiar?  Not much has changed, but much is at stake. Exit poll after exit poll reported that by far the greatest concern on voters’ minds is the economy.  Now that we have the results, there is great pressure on Washington to find common ground in order to solve our economic crisis.  
The first real test facing the President is to keep us from falling over the fiscal cliff.  The fiscal cliff refers to the expiration of the Bush-era tax cuts coupled with billions in spending cuts set to take effect on December 31, 2012.
Avoiding the fiscal cliff is paramount to turning the economy in the right direction for two reasons. First, the impact of sharp spending cuts and tax increases on most Americans (think pre-2001 tax rates) carries with it the likelihood the economy will be thwarted into another recession. Secondly, this is a test for the new electorate to demonstrate leadership and collaboration. Dysfunction in Washington creates uncertainty for investors. Uncertainty is the enemy of investing, risk taking and business planning.
In my view, the actions, or inactions, of the stock market have always served as a window into investor sentiment. If the trading days following the election tell us anything it is clear that the lack of clarity and general uncertainty surrounding taxes and federal spending is looming heavily on the minds of investors, and they are not investing, they are selling.
With more questions than answers, it is difficult to know what to do but wait and watch. However there are a few things you can do to prepare your portfolios for inevitable change:
• Focus on items within your control: seek to maximize savings levels and learn about the advantage of tax deferral and minimization strategies.
• Expect higher taxes. It may be a good time to evaluate concentrated and low cost-basis stock positions and diversify at what may be the lowest capital gains rate in a very long time. Asset location also takes on greater importance – which assets are held in which accounts can materially affect realized after-tax returns.
• Year-end is an opportune time to revisit your long-term plan. Confirm your goals and objectives, progress to date, income needs, perception of and comfort with risk.
Our government seems further apart than it has ever been.  Let’s hope the fear of falling off a cliff will unite Washington and give them incentive to build a bridge for America’s future and  the future of our children.
Stephanie W Mackara is a Daniel Island resident and Chief Marketing Officer for Palladiem, LLC, a Registered Investment Advisor.  The views contained herein are not intended as investment advice.  For more information contact smackara@palladiem.com.

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