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Preparing for ‘fiscal cliff’

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As an investor, you can sometimes still feel you’re at the mercy of forces beyond your control. This may be especially true today, when the Federal Reserve has warned of an approaching “fiscal cliff.” What can you do in the face of such a dire prediction?

First of all, you need to understand what led to the Fed’s remarks. Here’s the story: Some $1.2 trillion in spending cuts are scheduled to begin in 2013 while, simultaneously, the Bush-era tax cuts — including the reduction in capital gains and dividend taxes — are set to expire. This combination of spending cuts and higher taxes could take some $600 billion out of the economy, leading to a possible recession — and maybe something much worse, at least in the eyes of the Fed.

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