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Ameriprise: Advice on Investing for the ‘Fiscal Cliff’

With the looming “fiscal cliff” due to come with the New Year (which may not make things too “happy”) unless Congress and the White House work out a deal, it seems that there is a lot of uncertainty and volatility in the markets, and the status quo of governance (Democrat-controlled White House and Senate, GOP-controlled House, just like before the election) doesn’t seem to be generating much confidence. While some analysts have gone on the record to tell people to have confidence that at least a “kick the can” deal will get done by January 1, Ameriprise Financial market strategist David Joy advised to “take risk off the table” in your investments, as he spoke on Fox Business Network Thursday.

“First of all, when you look at the ‘fiscal cliff’ and the possibility that it gets triggered, that likelihood is certainly north of zero,” Joy said. “I think there is a lot of complacency on the Street that this is going to get done and that we’ll buy ourselves some additional time. But if you look at the rhetoric that is going back and forth … what it suggests to me is that this will not be an easy thing to accomplish. Whether it’s a 10 percent chance or a 20 percent chance that it gets triggered, you need to defend yourself.”

Joy went on to describe a strategy he would consider that would be a low-risk hedge to protect against the austerity measures. “You have to do two things,” he said. “First, you have to make sure that the equity exposure you have is tilted toward the defensive sectors of the market; that would be things like utilities and consumer staples. In the bond market, there has been a tremendous flight of cash into high-yielding, lower-quality debt instruments. If there is a rotation away from that in the event of a recession, they are going to get crushed. So I think you may need to move to higher ground in the bond market, and be into investment-grade securities.”

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