Pulling Out Of The Stock Market Before The Sequester

I’m starting to believe that the federal government is the stupidest organization in the world. We seem to be staring down one manufactured crisis after another: the debt ceiling crisis of 2011, the fiscal cliff of late 2012. Now, we’re looking at yet another self-imposed, potential disaster.

Congress’s last-minute deal to avoid the fiscal cliff as 2013 began included delaying the much-discussed, little-understood Sequester. Now, those $1.2 trillion in cuts – mainly to defense and social programs – are set to kick in on March 1. And this time, it looks increasingly likely that Congressional Republicans are going to hold their ground and refuse to push back the Sequester any further until they get some serious spending cuts.

This all has me asking one question: is the stock market about to tank again?

Lessons Learned From 2011

Last year, I told you about my dumbest stock market decision ever. It occurred during the debt ceiling talks of 2011. In the days leading up to the debt limit, I opted to keep my stocks in the market, even though I had some serious reservations about it. My stocks ended up losing half their value virtually overnight… and just when they were on the verge of gaining back everything they lost in one instant in August 2011, the fiscal cliff crisis sent them careening down again. However, they have made a modest comeback since then. And that’s what worries me.

My Investment Strategy

At my core, I am a long-term investor. I am not looking for quick wins in the stock market; I’m looking for long-term gains, and to do that, you need to be able to withstand the ups and downs of the market.

And I’m losing the fortitude to deal with it.

Cliff after cliff, crisis after crisis, I’ve tried to keep my emotions in check. But it’s getting tougher to do.

My Current Quandary

So now, I’m staring down the face of the Sequester and its potential impact on the economy and, more specifically, the stock market. Most economists agree that the cuts are too much for the frail recovery to take; however, most pundits agree that while Congress may let them kick in come March 1, they’ll reach an agreement soon afterwards and the long-term impact of the Sequester will never become a reality.

But that doesn’t mean the stupidity of our lawmakers won’t have a negative impact on the stock market. While a brief tango with the Sequester won’t plunge us back into a recession or hurt our GDP or employment levels for very long, I do worry that it could send stocks plummeting – just like the debt ceiling debacle of 2011 – and suppress their ability to quickly bounce back.

I’m debating whether or not to sell my holdings in advance of March 1, then buying them back once this latest crisis is solved. Because of my tax bracket, I won’t have to pay capital gains taxes on what I make off the sale; I’ll only face a flat fee sales charge through my brokerage on both the sale and repurchase of the stocks, which represents less than 1% of what I’d make off the sale.

What would you do? Are you considering making any changes to your investments ahead of the Sequester?

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