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What the Election Holds for Investors

Thursday, August 2nd, 2012 | Uncategorized | No Comments

During the next several months, the November 2012 elections will likely become an increasingly potent driver of the overall markets. In these elections, the party that emerges in control will forge decisions that will represent one of the biggest shifts in the federal budget policy since World War II.

The economy is impacted by fiscal, monetary, and regulatory policy, all influenced by the election winner. The outcome of this year’s election may be more consequential, as it will help determine the path taken in 2013 to address the fiscal challenges in the United States including the debt ceiling and potential debt downgrades. In addition, tax increases and spending cuts that have already been written into existing legislation to occur in 2013 need to be addressed. More than ever, this election will likely have a major impact on the economy.

The largest concern for investors and the economy is primarily tax increases already in the 2013 budget and spending cuts. The 2013 budget is going to have the biggest impact of any budget in decades even if no action is taken in Washington. The fiscal headwind composed of both tax increases and spending cuts under current policy totals over $500 billion or 3.5% of Gross Domestic Policy. While the U.S. economy is not likely to see the big declines in government spending that came after WWI and WWII, the United States has never experienced a deficit cut of more than 2% of GDP that did not end in a sharp decline in GDP.

Many investors are concerned about the many changes in tax policy that change after 2012. As we stand right now, more people will be paying the death tax. Dividend and interest taxes on investments are set to rise. The AMT patch will need to be fixed. Tax-Free IRA distributions to charity will be eliminated. Mortgage Insurance premium deductions will disappear. These are just a few of the many examples of tax policy that will have to be addressed.

As we look towards the rest of 2012 and into 2013, the markets are likely to be volatile because of the uncertainty and inaction of our elected officials. Talk to your financial professional about how these factors will affect your investments.

For more information, contact Jack Meece at (865) 200-8219 or email Jack.Meece@lpl.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Securities offered through LPL Financial, Member FINRA/SIPC.

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