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Health & Fitness

Election Results, Investment Plans: Moving Forward

How the 2012 election results affect investment decisions, and how to proceed going forward.

Ladies and gentlemen, the results are now in from the 2012 Presidential and Virginia Senate Elections.

As I write this, at the market opening (9:37 AM) on November 7, 2012, the Dow Jones Industrial Average is currently down 200 points. Please keep in mind that the market opens at 9:30 AM.

Dramatic market movements such as this typically indicate overreactions to current events.

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I am also listening to LPL’s Research Department’s Morning Call. Our experts are talking about their vision of the future and reacting to questions regarding “safe havens” for our clients. Discussions are taking place, such as the best methodology for moving into cash, looking at commodities as an alternative, and what technical indicators are out there to indicate market support levels or constraints.

The discourse on financial markets, political “talking heads” on television and the results of the elections have me trying to find a way for all of us to move forward through these markets without taking on large amounts of risk, if possible.

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Here are my concerns: the American people have now selected Socialism as an acceptable form of government. This means that we will see much larger amounts of government spending. In order for this spending to take place, tax increases will probably begin in the very near future. “The Fiscal Cliff” is the new catch phrase, which encompasses the end of tax cuts in 2013. There are substantial changes that will take effect, unless Congress does something to extend or change the cuts.

When the government begins to take more money from businesses and individuals, there will be a loss of cash flow on “Main Street”. In my humble opinion, you will find more businesses changing their business models drastically in an attempt to avoid taxation and regulation.

So, where do we go in an attempt to protect and enhance our portfolios?

The simple answers are:

1)      Find cash flows for portfolios (dividend-paying stocks, high yield portfolios with “shorter” maturities, etc.)

2)      Find Tax-protection (Tax Free Investments, Tax-Deferred Investments)

3)      Be ready to speed up some of the recovery from tax loss sales of years gone by (if tax rates increase, and you have tax losses that you have carried forward from prior years, they may be able to offset unrealized gains from the last couple of years, and help offset the proposed higher tax rates President Obama has proposed on those gains. In effect, 15% capital loss tax rate offsets from the last several years could represent a higher percentage of tax offsets going forward.)

4)      Beware Long Maturities on Fixed Income Investments (All-time high prices, All-time low yields.)

5)      Consider Alternatives (Real Estate, “Hard” Assets, etc.)

Understand, there are no hard and fast rules when it comes to investing. Work with your advisor to make sure that whatever strategy you use, that it works for your time horizon, risk tolerance, and budget.

Darryl G. Barnes, President
Deacon Wealth Management
dbarnes@deaconwealth.com
(540) 371-8585
Deacon Wealth Thoughts

Disclaimer: Any investment carries some form of risk and results may vary.

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