As we watch another week pass, with political parties bashing each other, our position remains that investors cannot prepare a game plan, while the rules of the game remain unknown. We believe investors and businesses alike will remain stagnant until after the election, and we have insight on future regulations and taxes. Once a decision is made, regardless of who wins the White House, investors should be able to move ahead.
Research groups have indicated that more regulation would cost the economy near $1.8 trillion. Businesses are afraid of more regulation. The more risk there is in an investment, the more demand there is for a higher payoff. The less we know about the future of regulations and taxes, means there is increased risk. Thus, companies are not investing with an uncertain political environment.
If we learn that taxes will increase, we may recommend certain investors recognize capital gains. An increase in taxes will affect how we plan for tax loss selling, portfolio allocation and in which accounts we place dividend-paying stocks. Until we have these answers, we simply cannot make a decision.
If the market is forward looking, has it accounted for the sequestration, the automatic across-the-board budget cuts? Perhaps. Looking at the future, one would think the markets would be down now. The markets are up simply because investors cannot earn anything in bonds, savings or money market accounts. The low interest rate environment has forced people into riskier investments. Nearly one-third of the S&P 500 companies are paying a dividend of more than 3%. Right now, the stock market is the best deal going.
We believe that sequestration would lead the economy into a recession, but that doesn’t mean the markets will go down. Corporations are forecasting slower growth in 2013 but not negative growth. In our opinion, to move ahead, you need capital investment. You cannot stimulate capital investment by raising taxes.
But the fact remains, until a decision is made in Washington, we do not know the future of taxes. We recommend investors continue to invest in equities, as many companies are financially strong and will be able to weather a recession should it come. These are the same companies that are hording their cash. If taxes do not rise, we suspect these same companies will invest that cash in capital investments, thus moving them forward.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
