Buckle Your Seatbelts, Here Comes the Fiscal Cliff!

Very few investors saw the 2000 Tech Bubble crash or the 2008 Financial Crisis coming. While anyone and everyone is closely watching the looming “fiscal cliff”, that doesn’t mean Average Joe investors will be able to avoid that perilous fall.

Indeed, the potential avalanche of bad investment advice stock brokers and financial advisers are peddling right now could prove just as devastating as the cliff.

As many reports have noted, the package of tax increases and spending cuts known as the “fiscal cliff” takes effect in January unless Congress passes a budget deal by then. The economy would be hit so hard that it would likely sink into recession in the first half of 2013, economists say.

Commission-hungry stockbrokers are telling their clients to sell now to beat next year’s likely tax increases and then buy the stocks you held after the New Year.

Public companies and their lawyers are ruminating about whether to disclose to investors the risk of the fiscal cliff to their businesses and the likely effect on stock prices.

Pundits are equally split over whether the President and Congress can cut a deal to avoid another economic catastrophe and US downgrade by the rating agencies.

What’s the Average Joe to do here?

Caution and diversification should be the name of the game, until Congress and President Obama get this mess straightened out.

Avoid financial advisors who preach that they know where this is heading and the stock sectors that will benefit the most.

The following report is typical of an adviser making such a call, and quite worrying.

“Billionaire investor Ken Fisher is so convinced a deal will be done he says any market trepidation – or short-term selloffs later in the year – should be used as a buying opportunity,” according to a Reuters report. “Fisher was in Washington in June and has talked to three legislative aides since then. He believes the fiscal cliff will be punted far into the future, perhaps after the next midterm elections in 2014. In his read, it is a non-issue.”

“I don’t think the fiscal cliff is anymore of a reality than the concern once was about swine flu and Y2K,” said Fisher, according to Reuters. “My view is that this issue is a cause for bullishness, because fear of a false factor is always a bullish factor,” he said.

Investors, before following such bullish advice, let’s slow down and remember the history that we know only too well. Wall Street has a long history of getting it right for themselves and leaving the little guy investor holding the bag. Why should it be any different with the fiscal cliff?

• Become A Funded Futures Trader