Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
Think the markets have been unpredictable so far this year? You ain’t seen nothing yet. As the 2012 political season ramps up, Washington is sure to add to the insanity with the two parties battling to win over voters and special interest groups. Some might wonder whether they should head for a safe harbor until the political seas calm down.
Believe me, I understand that frustration. Still, it’s a bad idea to modify a carefully devised long-term investment plan based on short-term developments. If you allow yourself to be distracted by the latest headline from Europe, newest economic report or most recent juvenile antic from Washington, you will never achieve your investment goals. And you’ll drive yourself crazy – after all, something ridiculous comes out of Washington just about every day.
And things will only get crazier this week. Congress’ bi-partisan “Super Committee” is currently tasked to find $1.5 trillion in deficit reductions (spending cuts and/or tax increases) by Wednesday.
Nearly any outcome of those deliberations will impact the market in the short term. The committee’s failure to reach an agreement would likely cause stocks to tumble, at least briefly. A hollow deal that consists of cuts in areas already slated for reduction (military spending in Iraq, for example) would also be greeted negatively. That unfavorable response might even include yet another cut in the government’s credit rating.
Oddly, a recommendation to raise some taxes could cheer the market, especially if the increases are modest and are part of a deal to retain the Bush tax cuts, which are set to expire next year.
The Money Matters team thinks there is a likelihood some reductions will be made and whatever is leftover will roll into the automatic cuts mandated by the law that raised the debt ceiling and created the Super Committee — not a terrible outcome for the markets. We also see a chance for tax and entitlement reform, which would be viewed positively by investors.
It is important for you, as a citizen, to stay informed on how our country is managing its finances. But it is equally important that you, as an investor, don’t over-react to the latest developments. Investing is like canoeing down a river full of rapids. You need to chart a careful course, hold on tight, and understand that there’s always more turbulence ahead. If you keep pulling the boat out of the water in an attempt to avoid the rough water, it will take you twice as long to get to your objective.
Do you think there is any chance of a “Grand Plan” or that comes up with the full $1.5 Trillion? Beyond the $1.5 Trillion?
– By Wes Moss, for Atlanta Bargain Hunter