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Investor Alert

Outside the Box

Oct. 31, 2020, 1:19 p.m. EDT

What should a smart investor do now?

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Paul A. Merriman

I’ve been getting some questions lately that make me think investors are unusually nervous and don’t know what to do.

There’s a sense that we are on the brink of some monumental change — obviously related to the presidential election — that will have huge implications.

The questions come down to this: “When I know something big is about to happen, but I don’t know what it is, what is the prudent thing to do with my investments?”

Let’s look at three possible answers.

Here’s the short answer : There’s absolutely no way to know. So don’t do a thing. Just stay put.

Here’s the slightly longer answer (which could be regarded as sarcastic but in fact is perfectly rational): Come back one year from today, and I’ll tell you what you should have done this week.

Here’s the answer Wall Street might give: Your fears and uncertainty are warranted. Our experts have studied this, and they have some great solutions. Hire this manager. Buy this product. Do it right now.

The uncertainty revolves around the presidential election more than anything else. But there’s also the pandemic. There’s the major shift taking place in the way people live, work, and spend. There’s climate change. There’s the Supreme Court. Civil unrest and mistrust of institutions.

Read: Have seniors turned on Trump?

For many years I was an investment adviser, and one of my clients was named John, an elderly man from Louisville, Ky., and one of the nicest people I have known.

Sometimes I would get a phone call from John, and he’d start out: “Paul, are you happy with the way things are going?” When I heard that, I knew right away he was red-hot upset about something.

Read: 401(k) and IRA changes coming in 2021

On Nov. 4, 1992, the morning after the presidential election, John called, and this time he wasn’t that subtle.

“Sell everything,” he said. “I’m not going to have my money in the market as long as Bill Clinton is running the country. This is going to be a disaster.”

I stayed on the phone with John for nearly an hour, trying to convince him that turning his portfolio into cash was not the right thing to do — even though that could have turned out to be the right move. (There’s that “come back in a year” response again.)

John finally calmed down and agreed to sit tight, though he probably wasn’t totally happy about it — at least until the stock market took off and (in 1993) began seven straight years of gains that amounted to a long bull market.

During Clinton’s presidency, 1993 through 2000, the U.S. stock market, measured by the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.24% , compounded at an astonishing rate of 21.5%.

/zigman2/quotes/210599714/realtime
US : S&P US
3,638.35
+8.70 +0.24%
Volume: 1.22B
Nov. 27, 2020 2:07p
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