Keith Aleardi, chief investment officer at Fulton Financial Advisors/Clermont Wealth Strategies, says phones “have been ringing off the hook” as the term “fiscal cliff” makes an increasing number of appearances in newspaper headlines, television news programs, and Twitter feeds.

“Clients started talking about the fiscal cliff about three months ago,” he says, “but since the election all eyes are on the issue. Clients are worried.”

Aleardi speaks on “Economic and Market Perspectives: Post Election Scenarios for the Fiscal Cliff” at a meeting of the MIDJersey Chamber on Thursday, November 29, at 11:30 a.m. at the Westin Princeton at Forrestal Village. Cost: $40. Call 609-689-9960.

The dreaded fiscal cliff, says Aleardi, is the expiration of stimulus tax cuts and the resulting automatic government spending cuts that are set to occur on January 1 if the federal government does not act before then. This event, which is still avoidable, would be a very bad thing in his view.

“It would reduce economic output by 4 percent,” he says, “and the economy is only growing by 2 percent a year. Unemployment would increase. There is a high probability of pushing the country into a recession.”

The expiration of tax cuts would mean fewer dollars in consumers’ pockets at the same time that a large reduction in government spending would be taking money from a still-struggling economy. The result might not be so dire in a stronger economy, but could be truly painful in early 2013.

Some pundits have been saying that sailing over the fiscal cliff could be a good thing. “It can sound attractive,” says Aleardi. “It would reduce the federal deficit substantially, but historically at no point have we deliberately put ourselves into a recession.” He is convinced that it would be “too much, too fast.”

Aleardi, who grew up in suburban Philadelphia, where he still lives, is a graduate of Ursinus College, Class of 1989, where he studied economics. He obtained an MS from Boston University in 2008 and has worked in the finance industry for his entire career, starting with a stint at Merrill Lynch. He has been with Lancaster, Pennsylvania-based Clermont for one year.

Aleardi’s clients for the most part are high net worth retired individuals who, he says, are past the accumulation phase in their economic lives and are most interested in preserving and growing their wealth. “Their first priority is keeping their money, the second is keeping it working,” he says.

A drop off the fiscal cliff is likely to affect everyone, but Aleardi’s clients, and other high net worth people, face a more complicated calculus. Less publicized than the January 1 automatic income tax increases are a host of other tax rule changes that will take place if the cliff plunge occurs.

These include a fivefold reduction in the amount of an estate that can be sheltered from taxes — down from $5 million to $1 million, and an increase in taxes due on dividends, up from 15 percent to as much as 43 percent, depending on income bracket. The capital gains tax would increase, too.

These are big changes, but planning for them is tricky because they may not occur. Further complicating the picture is that, if the federal government does take action to avoid triggering the automatic tax increases, many analysts are predicting that there will be a whole different set of tax changes. The elimination or substantial reduction of a number of longstanding income tax deductions is considered to be a possibility as is a cap on the dollar amount of deductions that would be allowed.

So, what is a taxpayer to do?

Be balanced. “This is number one,” says Aleardi. His firm has long had a policy of putting clients into the broadest possible range of investments — “equities of all sizes and styles including international and emerging markets, bonds, fixed income, alternative investments.” This broad base cushions the ride over any bumpy investment terrain.

Be flexible. This is not the time for a rigid investment philosophy. Aleardi’s clients are able to move their asset allocations around a bit, and right now he is advising them to be “more conservative in the face of uncertainty.” But not too conservative. “We haven’t recommended an increase in cash position,” he says.

Be prepared to weather the storm. “Be sure to have the right amount of short-term investments to cover lifestyle,” Aleardi advises.

Lean toward quality. This may not be the time to dabble in risky start-ups. “Be more invested in high quality, big company stocks,” says Aleardi. Also, seek out more conservatively managed bonds.

Think about making gifts. High net worth individuals are seriously worried about changes to estate tax laws. But Aleardi says that this environment might present opportunities to think about what they want their accumulated wealth to accomplish. His firm has been very active in establishing trusts for its clients lately, he says.

While his expertise is in investments rather than in estate planning, Aleardi suggests that for clients who can afford it, this could be a good time to make gifts to relatives or to charities that they have been meaning to make anyway.

Hedge your bets. There is so much uncertainty around every aspect of financial planning. As an example, if the tax rates go up, as they will if the federal government doesn’t act, it could be a good idea to reduce the sting by putting off large charitable contributions until next year. On the other hand, if a hard cap is put on the amount that an individual can deduct for charitable giving, it might be a good idea to make the gift this year.

Similar conundrums surround selling stocks that have appreciated significantly. Is it a good idea to sell now, to take a capital gains hit, albeit possibly a lower one than would be the case in 2013 if the capital gains tax effectively triples on January 1?

Aleardi says that it’s impossible to know the answers to any of these questions right now. What’s more, he says, “we probably won’t know until it’s too late to do much.” Any Congressional action may well not take place until we are deep into the winter holidays.

So, he advises straddling the fence a bit. An example could be selling some appreciated stock, but hanging on to some, too. “Do a little here and there,” he says. “Spread out the effect. A blended impact could be more successful.”

It is hard to predict what will happen, but Aleardi is seeing increasing sentiment for a compromise that would break the contentious gridlock that has characterized Washington for the past two years and has brought the country to the edge of a painful dive off a fiscal cliff.

“It’s an important issue for every American,” says Aleardi. “The American people are not looking to engage in financial suicide.”

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