"Fiscal cliff averted": Should you invest in the US stock market? Should you invest in the US? The issue for UK investors considering whether to invest in the American stock market is whether it is cheap compared with the profits generated by the companies on it - and whether the economy will grow rapidly in future and enable those profits to increase at a decent pace. The "fiscal cliff" issue is not entirely solved and there are implications even from the deal struck last night. The top tax rate on large estates will rise to 40pc, from 35pc, and taxes on capital gains and dividends over $400,000 for individuals and $450,000 for couples will be taxed at 20pc, up from 15pc. Economists say the immediate impact will be minimal and that the changes would deliver some $600bn in revenue over 10 years, helping to tackle America's profligate overspending - but the effect, again, will be tiny: the US is sitting on a debt mountain of $16 trillion and is spending around $1 trillion more than it takes in tax each year. Other tax rises could have a more immediate impact on the economy. There was a tax rise that Democrats and Republicans didn't bother to fight over: the end of a 2 percentage point temporary cut in the Social Security payroll tax, originally enacted two years ago to stimulate the economy, which expired at the end of 2012. The so-called payroll tax is scheduled to bounce back up to 6.2pc this year from 4.2pc in 2011 and 2012, amounting to a $1,000 tax increase for someone earning $50,000 a year. Joel Naroff, president of Naroff Economic Advisors, called it "a huge hit" that would affect consumer spending. Economists fear weaker consumer spending will hit the economy For some, there is disappointment that a deal was reached to avoid the "fiscal cliff." Some in the US, particularly on the right, were hoping that such a scenario was the only way to finally tackle America's debt problem in any significant way. British investors thinking of investing in the US should consider the risks. Some commentators have warned that Washington could be locked in a similar cycle to Brussels, with politicians in perpetual deadlock over the budget. The European Union has struggled to reach stable agreements on bailouts for Greece, Portugal and Spain. But investors should also consider the wider factors that can affect stock market returns over the long term. Demographics is one such issue. Many Western economies are paying the price for having an ageing population. Some of this effect has been offset in the US by high immigration. This has created a bubble of younger people in the population but has also benefited the economy by importing cheap labour. But a four-decade tidal wave of immigration from Mexico went into reverse last year with more Mexicans leaving than arriving. How the FTSE 100 (blue) has performed against the US stock market, with the iShares S&P 500 tracker in yellow The optimists, however, argue that America's ingenuity and excellence in technical innovation will drive the economy to new highs, outweighing these other issues. So is the US stock market cheap? Measuring the value of a market against the profits of companies, known as the price-to-earnings ratio, is one measure. Smoothing those returns over the cycles of the economy - the regular rises and falls - is, according to some studies, an even better way to measure how well stock markets may perform in the future. The cyclically adjusted price to earnings ratio, known as Cape, smoothes p/e ratios over a decade. The US was one of the most expensive stock markets, as measured in a recent Cape analysis by Cambria Investment Management. It put the US on a Cape ratio of 20.9, compared with 12.47 for the UK and 7.23 for Italy. Financial advisers warn investors to keep a balanced portfolio but those who want to take the plunge should spread their money around different types of asset and different countries. Some global and 'balanced' funds will do this for you. But if you want to do it yourself and select your own country-focused funds, experts have recommendations on funds that have managers who previously performed well, although there's no guarantee they can repeat that feat. Rob Crawshaw, senior fund analyst at Brewin Dolphin, last month on Telegraph Money recommended Brown Advisory US Equity Growth and JPM US Equity Income, which over the past three years have returned 48.1pc and 42.3pc respectively, compared with 39.1pc from the S&P 500. Darius McDermott of Chelsea Financial Services tipped Axa Framlington American Growth, Jupiter North American Income, Legg Mason US Equity Income and Threadneedle American Select. He said: "The US story looks very compelling as we are seeing some material structural changes coming through. While valuations aren't expensive, the US market is not the cheapest developed market by any means. That said, any investors who do take this opportunity to invest in the world's largest economy could be rewarded over the long term, even more so if the dollar appreciates. Investors could also consider index-tracking funds, which carry far lower charges than "actively managed" funds. L&G's US Index Trust comes at a cost of 0.82pc a year and you can invest just £50 a month. Vanguard's US Index Fund costs just 0.2pc a year. Investors can also track the market with low-cost exchange-traded funds. The HSBC S&P 500 ETF, for example, carries a charge of just 0.09pc.