Will Higher Taxes Change the Way You Invest?

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Congressional Republicans and Democratic leaders still appear to be quite a ways apart when it comes to how they want to proceed with the Fiscal Cliff. Just in the last day or so, Republicans have called Obama’s latest fiscal cliff deal proposal—which includes $1.6 trillion in revenues-- a non-starter, while key Democrat Harry Reid declared that he ‘doesn’t understand John Boehner’s brain’.

With this kind of rhetoric, one should probably assume that the Fiscal Cliff debate could last for a bit longer. However, one thing seems for certain; tax rates are going to go up (read Three ETFs to Prepare for the Fiscal Cliff).

While we can debate about how much higher the top rate will go, and if dividend taxes will shoot into the mid-40% range, the real question is does it matter? Will these (in some cases) sharply higher rates really change how people invest their money?

Personally, I don’t really think it will change how I invest for the long-term. Yes, a higher tax rate isn’t exactly great news, but what can be done?

There aren’t many other options out there to achieve a decent return over the long haul, especially if rates go up across the board. Stocks will remain the best bet even with sharply higher rates, so I think that while investors may complain, they won't really change too much about their portfolios.

But what about you?

If we do see higher tax rates for income and dividends, will you alter your investment strategy?

Let us know what you think in the comments below!

Zacks Investment Research



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