Whether or not you believe that the United States is heading for financial disaster shouldn’t prevent you from preparing to survive financially, according to noted financial expert Michelle Perry Higgins.
“Most Americans will probably feel some financial impact if the U.S. does go over the fiscal cliff,” Ms. Higgins says. “It doesn’t matter whether you’re a liberal or a conservative, this is a significant issue that could affect us all and we need to be prepared.”
Ms. Higgins advises having what she terms a “defensive barrier,” the portion of an investment portfolio that is not in the stock market, within a diversified portfolio. “It should be enough to adequately cover an investor’s income needs through unpredictable stock market cycles,” she says. “I want my clients to sleep well at night and focus on the long term. Understanding that they have a cushion in their portfolio helps them do just that.”
An important recommendation Ms. Higgins gave during the 2008 financial crisis was that having a long-term strategy was key for those who were able to weather the storm. She gives similar advice now. “We can’t control the outcome in congress, but we can manage the risk in our clients’ portfolios.”
What exactly is the ‘fiscal cliff’? Ms. Higgins explains: “It’s a metaphor for what will happen at the end of 2012 when terms of the Budget Control Act of 2011 are scheduled to go into effect. Tax rates will increase, dramatic spending cuts and new taxes from the Healthcare Act go into effect concurrently. Medicare will undergo particularly deep cuts. The outcome could have far-reaching consequences.”
Ms. Higgins advises seeking professional investment guidance before making financial decisions. “It’s understandable that some people may be full of anxiety right now and have many questions. It would be wise for investors to determine the adequate defensive barriers they need and to avoid making emotional decisions within their portfolios.”