The U.S. economy faces a huge problem after the New Year, if Washington does not solve a critical budget deadlock known as the ''fiscal cliff''. What can investors do to protect themselves?
The US economy faces a huge problem after the new year if Washington does not solve a critical budget deadlock known as the fiscal cliff. Without action a whole series of spending cuts and tax increases. Well automatically go into effect. Putting a 600 billion dollar drag on the US economy if that happens economists agree the US will fall off the cliff. Into recession. So what can investors do to protect themselves against the -- Tom Lee chief US equity strategist for JPMorgan. Says many hedge fund managers have moved their money into cash. -- that investors should avoid trying to predict what Washington will do. I would tell investors that they should be buying stocks right now I'm I think the risk reward is heavily favoring stocks will rise. Regardless of outcome it's because investors especially professional investors -- really cut their exposure when every once sold stocks are likely to fall further. Alec young global equity strategist at S&P capital IQ. Says it's okay for investors to tweak and their portfolios. But they should avoid making major changes. If you are short term investor might make sense to say. Book -- a nice profit that you might have to lock in that lower capital gains rate but if you're a long term investor keep in mind that you know. The are paying a higher tax rate on a much bigger gain ten or twenty years may turn out to benefit you more. Then a lower tax rate on a much smaller gain taken in in 2012. One of the biggest arguments between President Obama and Republicans is whether to raise taxes on people making more than 250000. Dollars a year. Part of that would come through increases to tax rates on capital gains and dividend. Steven wood chief market strategist at Russell investments and -- sustain very diversified. The world is getting more complicated. We think that returns will be lower volatility will be higher so you need to look globally. In a multi -- strategy that's gonna help you ride -- the volatility. And increase the probability of hitting your goal. Deal or No Deal the market heat uncertainty still most market participants expect Washington to reach some sort of compromise. Even if it's only a short term solution.