Investing Lessons from the Cliff
Still get a little anxious whenever talk of a fiscal cliff hits the news? Debt-ceiling standoffs and Band-Aid® fixes to our nation’s debt woes have played out on several occasions since the bitter 2012 “fiscal cliff” negotiations that made the term a household word. If nothing else, it seems clear that many of the same political and economic woes will not disappear from the spotlight anytime soon.
But don’t get too upset over the political machinations of Washington. Instead, apply the lessons learned over the past few years to be more engaged in the markets in the future:
Lesson 1: Investing and politics should not be separated. It might seem reasonable to expect a stock or bond with solid fundamentals to perform well regardless of political developments. There’s little doubt anymore, however, that turmoil in Washington can spill over into the markets.
Lesson 2: The worst-case scenario typically does not always occur. Prepare your portfolio for a range of outcomes, even when it seems likely that markets will perform poorly. If the nation had gone over the fiscal cliff, the economic consequences could have been disastrous. The worst outcome never materialized, however, and investors who acted on the assumption that it would paid a price.
Lesson 3: There's a difference between economic and political realities. Politicians' well-publicized claims about what was at stake in the negotiations heightened the public's apprehensions. Such political talk, however, rarely aligns with economic realities.
Lesson 4: The markets often take the long view. The fiscal cliff didn't materialize unexpectedly in the final days of 2012. Investors saw it coming for months and made buy and sell decisions accordingly. That means that when the economy was teetering on the brink, markets had already discounted the potential negative impact of a breach.
If you’d like more information about separating political discourse from economic reality or about applying debt-ceiling lessons to your investment strategy, talk with your Investment Professional.
This article was written by a third party and provided courtesy of E.K. Riley Investments, LLC and Compliance-Approved Title in Seattle, WA at 206.832.1520.
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