While Congress managed to avert fiscal disaster with a last-minute deal in December, many of the same budget cuts loom on the horizon for March 1. The difference is, this time around, Congress doesn’t seem too worried about the impact.
For years, our federal government has denied the fact that we have a spending problem. Now, the sequester—the technical term for the mutually destructive $85 billion of across-the-board budgets cuts the parties negotiated last year—will make significant cuts, but in a way that could shatter the fragile economic recovery. Politicians from both parties are talking about solutions, but seem to be far apart with no intention of moving to the middle.
For investors, this means that, while they might not see an impact on March 1, the economy will feel a long-term impact. This is on top of many other recent federal spending cuts and the January payroll tax hike—all will contribute to a slower economy and a weak stock market.
This continued uncertainty about the recovery should, at minimum, force investors to look at a broad range of options beyond the traditional stocks and mutual funds. I’ve already shared some of my reservations with the bond market, but would recommend annuities and other guaranteed income options as better choices for many families.