News Column

With Fiscal Cliff and Market Jitters, What's an Investor to Do?

November 26, 2012

Richard Burnett, Orlando Sentinel

Fiscal Cliff

Worried that the country could hurtle off the so-called "fiscal cliff" into another recession, nervous investors -- many of them wealthier ones also fearful of capital-gains tax increases -- have lit up the phone lines and email inboxes of local financial-advisory firms.

"There was a little panic out there," said Frank Arnall, a veteran financial planner and head of the Orlando office of United Planners Financial Services. "For some, it's like the only peace of mind they get is to sell off and go to cash until all of these issues are settled."

Until last Monday's 208-point rally of the Dow Jones index, the post-election sell-off had sent the market tumbling about 5 percent amid jitters about the impact on the economy of massive deficit-reduction budget cuts and higher tax rates, a k a the fiscal cliff.

The latest market decline was more evidence for Gerri Rosenthal of Tavares that she didn't want any part of Wall Street.

"I haven't invested in the market for years now," the real-estate broker said. "And I'm pretty much relieved to be out of it. My friends who are in it have lost a bundle. They're not happy at all."

Financial advisers say they have tried to reassure clients about their holdings -- in some cases "recalibrating" portfolios, setting up defensive stop-loss orders and selling out of some positions now to avoid being taxed at a higher capital-gains rate in 2013.

But that was little comfort for some investors, who took action on their own. One broker told of a client who announced she had cashed out her entire 401(k) plan and put the money in a bank account. Another client sold off his stock portfolio and bought shares in gold funds.

And although such extreme moves are also fraught with danger, exposing investors to potentially big losses, it is understandable in the current climate of uncertainty, Arnall said.

"We see some people who just have zero confidence in the fiscal-cliff problem being solved anytime soon," he said. "While I don't advise people to go cash in a big way, I do advise them to pull back some and go more into a mix of cash, short-term bonds and blue-chip stocks."

Other financial advisers have tried to tamp down the fiscal-cliff alarm by focusing instead on growing sentiment that the impasse will be resolved. They also cite the riskiness of making ill-advised stock sales now while trying to time the market's future rally.

"When investors impulsively go to cash at the click of a button, the problem then is knowing when to get back in," said Brian Fucile, an investment adviser with the Orlando office of Edward Jones & Co. "You're at risk of missing the recovery and never catching up."

According to stay-the-course financial advisers, investors should establish a balanced, diverse portfolio of stocks and bonds and pretty much stick with it, even in uncertainty.

"We really don't think this is going to be a fiscal cliff that anyone will fall off," said Charlie Fitzgerald, a financial planner in Maitland and president of the Financial Planning Association of Florida. "If anything, it will probably be more of a fiscal drag, depending on what Congress comes up with."

But financial advisers agree that many wealthy investors -- those with an annual adjusted family income of $250,000 or more -- are looking to avoid next year's likely increase in the capital-gains tax rate. Some investors have fueled the stock selloff, fearing that tax rates will increase from 15 percent to nearly 40 percent in 2013, if the Bush tax cuts expire.

The resulting selloff on Wall Street has taken a big bite out of some otherwise popular stocks. Apple stock, for example, lost about 20 percent of its value during the downturn. But while some investors fled such stocks, others went bargain-hunting.

"Yes, I'd be a buyer, not a seller of Apple -- I just bought some more shares this morning," said Ned Grace, an Orlando investor. "There's a huge contradiction between what is going on with Apple's stock and what is going on in their stores. I've been to stores in Orlando and Las Vegas in the past week, and they were absolutely packed."

But there is a big caution flag hanging over the opportunistic buying in this stock market, said Susan Spraker, chief executive of Maitland-based Spraker Wealth Management.

"We think this has been somewhat of a buying opportunity, but we are not all in yet, not until we know what the resolution of the fiscal-cliff issue is going to be," Spraker said. "There are still too many unknowns to be fully vested in stocks at this point."


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: (c) 2012 The Orlando Sentinel (Orlando, Fla.) Distributed by MCT Information Services


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